RBI Imposes Blanket Ban On Overseas Corporate Bodies

by Lorys Charalambous, for LawAndTax-News.com, Cyprus

19 September 2003

The Reserve Bank of India (RBI) on Tuesday imposed a blanket ban on overseas corporate bodies (OCBs), prohibiting them from investing in India in any privileged form, and 'derecognising' them as investment vehicles.

OCBs are companies or partnerships in which more than 60% of the interest is held by non-resident Indians (NRIs). However, the vehicles have often been criticised as acting as a cover for resident Indians wishing to invest in the country whilst taking advantage of the privileges afforded to their non-resident counterparts.

In November 2001, the RBI prohibited overseas corporate bodies from investing in the Indian stock market under the portfolio investment scheme. However, they were still permitted to open non-resident accounts, and to make direct investments.

In a statement issued on Tuesday evening, the regulator revealed that the decision to ban OCBs outright came after a further review of their activities, following the recommendations of a joint parliamentary committee tasked to investigate an earlier scam involving Mauritius-based sham OCBs.

It announced that:

'It has been decided, in consultation with the government, that henceforth, OCBs shall not be permitted to make fresh investments under (the) FDI scheme (including automatic route) and in other investments, deposits or loans under the various routes/schemes available to non-residents under exchange control regulations.'

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