RBI eases rules: More easy for biotech startups to raise foreign capital

The governor of Reserve Bank of India, Mr Raghuram Rajan  has initiated many measures that will make it easier for startups to get the flow of foreign capital and ease of doing business in India

#StartupIndiaStandupIndia: The Reserve Bank of India is on the same page with the union government.

Mr Raghuram Rajan in his policy statement, mentioned,”In keeping with the government’s Startup India initiative, the RBI will take steps to ease doing business and contribute to an ecosystem that is conducive for growth of startups,”

The RBI plans to help startups across sectors receive foreign venture capital investment and also enable transfer of shares from foreign venture capital investors (FVCIs) to other residents or non-residents.

 “Today, if a startup wants to raise money, it can do so through complicated contracts which are currently not allowed by the FEMA (Foreign Exchange Management Act). We are looking at if we can make this possible.” He said that another measure was to permit receipt of consideration on a deferred basis in case of transfer of ownership. This would be made possible by enabling buyers to create an escrow or indemnity arrangement up to a period of 18 months,” said Mr Rajan.
The central bank has also proposed to simplify the process for dealing with delayed reporting of FDI-related transactions by building a penalty structure into the regulations itself. Earlier last year, the RBI had set up a dedicated email helpline to help startups.

RBI measures that are likely to benefit startups:

  • The relaxation from sector restrictions for investments by FVCIs in startups is a welcome move. The existing requirement to approach FIPB for specific approvals only enhanced the timeline for deal closures.
  • To improve the ease of doing business and make compliance easier, the RBI would now enable online submission of forms for outward remittances and allow a document-upload facility, if required.
  • The RBI is also in discussion with the government to allow startups to raise rupee-denominated loans from foreigners and permit them to use innovative convertible instruments to raise funds.
  • Startups can now raise debt and also convertibles. So far, we had only compulsorily convertible notes.