RBI plays ball with govt, to simplify rules for startups

RBI plays ball with govt, to simplify  rules for startups

 In a bid to lend support to the Narendra Modi government’s Startup India initiative, the Reserve Bank of India (RBI) said that it plans to propose some regulatory changes, in consultation with the government to ease cross border transactions as well as relaxing some fund raising norms for the start-ups.

Enabling startup enterprises, irrespective of the sector in which they are engaged, to receive foreign venture capital investment and also explicitly enabling transfer of shares from foreign venture capital investors to other residents or non-residents is proposed to be made, in consultation with the government of India, RBI said.

Permitting, in case of transfer of ownership of a startup enterprises, receipt of the consideration amount on a deferred basis as also enabling escrow arrangement or indemnity arrangement up to a period of 18 months, simplifying the process for dealing with delayed reporting of Foreign Direct Investment (FDI) related transaction by building a penalty structure into the regulations itself are some of the other measures proposed, RBI said.

As far as fund raising is concerned, the RBI circular said that it is considering permitting startup enterprises to access rupee loans under External Commercial Borrowing (ECB) framework with relaxations in respect of eligible lenders. Issuance of innovative FDI instruments like convertible notes by startup enterprises and streamlining of overseas investment operations for the start-up enterprises is also under consideration, RBI said.

RBI governor Raghuram Rajan, in his monetary policy statement, had said that the Reserve Bank will take steps to ease doing business and contribute to an ecosystem that is conducive for growth of start-ups.

The measures will create an enabling framework for receiving foreign venture capital, differing contractual structures embedded in investment instruments, deferring receipt of considerations for transfer of ownership, facilities for escrow arrangements and simplification of documentation and reporting procedures, Rajan had added in the statement.

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