From September 17, 2024, the Indian government has mandated that all cross-border mergers involving Indian companies must receive prior approval from the Reserve Bank of India (RBI). This decision is aimed at tightening regulatory oversight and ensuring that such mergers align with India’s economic interests and financial stability.
Source:- news 18
Under the new regulation, any cross-border merger — whether inbound, where a foreign company merges with an Indian entity, or outbound, where an Indian company merges with a foreign entity — will require RBI clearance. The RBI will evaluate these transactions to ensure they comply with India’s Foreign Exchange Management Act (FEMA) regulations, which govern cross-border transactions and foreign exchange. The central bank will also examine aspects like capital flows, debt repayments, and adherence to anti-money laundering and anti-terrorism financing laws.
Source:- -BBC news
This move comes as the government aims to protect domestic interests amid rising global economic uncertainties and geopolitical tensions. It reflects India’s intent to maintain a tighter grip on financial transactions that could impact the country’s foreign exchange reserves, external debt position, and broader financial stability.
The RBI’s approval process will involve scrutinizing the terms of the merger, the valuation of the merging entities, and the potential impact on shareholders, creditors, and employees. Additionally, it will assess whether the transaction could potentially lead to any capital flight or money laundering activities. This requirement adds an additional layer of scrutiny to an already complex process of cross-border mergers, potentially leading to longer timelines for companies seeking to merge across borders.
Experts believe that while this regulatory measure may create a more challenging environment for international mergers, it could also provide greater transparency and security for Indian stakeholders, helping to safeguard the country’s economic interests and maintain a stable and resilient financial system.
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