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Wednesday, March 16, 2011

RBI's Annual Return extends beyond FDI & ODI to Foreign Assets & Liabilities, capturing reverse investments & info based on OFBV valuation

New Annual Return on Foreign Assets & Liabilities

To be filed with RBI on or before 15th July every year

Replacing the erstwhile requirement of filing Part B of FC-GPR

RBI has replaced Part B of the Form FC-GPR by a separate ‘Annual Return on Foreign Liabilities and Assets’ given as Annex-I. The return should be submitted by July 15 of every year to the Director, Balance of Payment Statistics Division, Department of Statistics and Information Management (DSIM), Reserve Bank of India, C-9, 8th floor, Bandra Kurla Complex, Bandra (E), Mumbai - 400 051. Further, the return should be submitted by all the Indian companies which have received FDI and/or made ODI abroad (i.e. overseas investment) in the previous year(s) including the current year. The Annex –II gives the concepts and definitions useful in filling the Annual Return on Foreign Liabilities and Assets. Remember, Part -A of FC-GPR remains as such.

Circular: A.P. (DIR Series) Circular No. 45 dated 15th March 2011 and is applicable with immediate effect from July 2011 onwards. & Definitions.

This requirement is to enable International Monetary Fund (IMF) for the purpose of compiling information to be used in the compilation of India’s Balance of Payments (BoP), International Investment Position (IIP), Coordinated Direct Investment and Coordinated Portfolio Investment. Hence, the formats are ensured to collect such COMPREHENSIVE & DETAILED information with proper definitions for various aspects. Interestingly, apart from the Audited Financials which needs to be annexed to the Annual Return, there is only a certification by Authorised official of the company.


It has the following sections:

1. Section I: Identification Particulars

· Block 1A : Total Paid up Capital of Indian Company

· Block 1B : Free Reserves & Surplus and Retained Profit

2. Section II: FOREIGN LIABILITIES

Investments made under Foreign Direct Investment (FDI) scheme in India:

· Block 2A: Foreign Direct Investment in India (10% or more Equity Participation

· Block 2B: Foreign Direct Investment in India (Less than 10% Equity Holding

Portfolio and Other Liabilities to Non-residents (i.e. position with unrelated parties)

· Block 3A: Portfolio Investment

· Block 3C: Other Investments: (like External Commercial Borrowings)This Other investment is a residual category that includes all financial outstanding not considered as direct investment or portfolio investment (outstanding liabilities with Unrelated Parties).

3. Section –III: FOREIGN ASSETS

· Block 4: Direct Investment Abroad under Overseas Direct Investment Scheme

· Block 4A: Direct Investment Abroad (10 % or more Equity holding

· Portfolio and Other Assets Abroad (i.e., position with unrelated parties)

· Block 5A: Portfolio Investment Abroad

· Block 5B: Financial Derivatives (with non-resident entities only)

· Block 5C: Other Investment (Outstanding claims on Unrelated Parties)

· Block 6: Equity Capital, Free Reserves & Surplus of Direct Investment Enterprise Abroad

[Please report here the total equity, the equity held by your company and the total free reserves & surplus of those nonresident enterprises in each of which your company held 10 per cent or more shares on the reporting date].

· Block 7: Contingent Foreign Liabilities

· Block 8: Employee Information of reporting Indian company

NEW CONCEPTS

Reverse Investment is defined and needs to be reported. It is when where the recipient of investment (being an Indian company) also holds LESS THAN 10% shares in the investor (in case of FDI into India). Same way, in case of ODI from India, the reverse investment is when the recipient of investment (being a foreign company) also holds LESS THAN 10% shares in the investor (being an Indian company).

Methodology for valuation of foreign liabilities and foreign assets:

• Debt securities should be valued at market price, while all other types of debt, viz., loan, trade credit, deposits, other accounts payable/ receivable should be valued at nominal value.

• For the valuation of the outstanding investment, use the corresponding endMarch/ end-December market price/exchange rate.

• For listed companies, the share price on the closing date of reporting period should be used for valuation of Equity.

• For unlisted companies, use the concept of "Own Funds at Book Value (OFBV)" for valuation of Equity, to have consistency in valuation. OFBV reflects the value of enterprise recorded in the book of Direct Investment Enterprise. To put in simple terms, OFBV is based on the books of the direct investment enterprise and can be seen on its balance sheet as shareholder‘s equity. The definition of OFBV contains paid-up capital, all types of reserves and net value of non distributed profits and losses (including result for the current year).

Example for OFBV:

Suppose company's paid up capital = Rs 250 lakh, with FDI 50 % (i.e. Rs 125 lakh)

Accumulated reinvested earnings = Rs 75 lakh

Revaluation of land & shares = Rs 159 lakh

Total = Rs 484 lakh

Therefore, Equity investment by foreign direct investor based on OFBV method is Rs 242 lakhs (50 per cent of Rs.484 lakh).

Enjoy filing Annual Return after reading the Definitions.

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