RBI Suggests to Cut VC Funds

October 19, 2007	(Be the first to rate this story!)  Loading ...
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The Reserve Bank of India (RBI) has extended Finance Ministry the ways and means to cut investment flows from venture funds coming into real estate.

These measures are likely to help check the part of the huge inflows of foreign capital, particularly since the last week of July.

The Apex bank has also recommended putting restrictions on investments by Venture Capital funds in sectors that are already developed. Other suggestions by the RBI include bringing foreign direct investments under the approval route.

The bank says to put end use restrictions for investments by foreign venture capital funds. VC funds should be invested in high-risk ventures in which the entrepreneurs are not able to access capital and not in mature sectors such as property.

The RBI has also suggested a time frame within which companies will require to allot shares to foreign entities after receiving advance payments. This has been sought to restrain a practice by Indian companies of using advance payments from foreign companies as loans and then returning them.

Currently, there is no policy for NRIs to invest in commercial real estate and they are allowed to make investments in two residential apartments in India.

The RBI has however stepped up its efforts to absorb the excess liquidity, increasing the cash reserve ratio (CRR) – the proportion of deposits banks must keep with the central bank — one percentage point this financial year.

News Published Under:   Banking and Finance |

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