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Informist, Friday, Oct. 3, 2025

 

MUMBAI – The Reserve Bank of India Friday released a draft notification on how foreign companies establish and operate branches and offices in India. The proposed framework seeks to update and replace rules that have been in place since 2016.

 

The draft regulations stipulate that no entity resident outside India can set up a branch or office in India without prior approval from the RBI or, in specific cases, the government of India. Only incorporated entities — not individuals — will be allowed to apply.

 

The regulations carefully distinguish between a "branch," an "office," and a "project office." Branches are defined as ongoing business operations, offices as representative setups, and project offices as temporary establishments created to execute specific projects. Each category has different operational and compliance requirements.

 

The draft introduces strict prohibitions on the type of activities foreign entities can undertake. Branches and offices are barred from engaging in activities prohibited under the foreign direct investment policy. Offices other than project offices are not permitted to carry out commercial activity. Entities engaged in legal consultancy are specifically excluded from setting up branches or offices.

 

The regulations propose a tiered approval mechanism. In most cases, applications can be submitted to the authorised dealer, following which banks may grant approval and report the establishment to the RBI. The central bank will then issue a unique identification number.

 

However, entities from certain geographies and sectors will face stricter scrutiny. Applications from residents of Pakistan, or from Afghanistan, Bangladesh, China, Hong Kong, Macau, and Sri Lanka intending to establish offices in sensitive regions like Jammu & Kashmir, Ladakh, the Northeast, and the Andaman & Nicobar Islands, will require prior approval from the government of India.

 

Similarly, non-profit organisations, government-owned foreign entities, and those engaged in sensitive sectors such as defence, telecom, private security, and broadcasting will be routed through the approval mechanism. Notably, exceptions are provided for defence-sector project offices if contracts have already been awarded by the Ministry of Defence or state-owned defence companies.

 

The framework puts banking operations under strict oversight. Branches and project offices will only be allowed to open non-interest-bearing current accounts with their designated banks. Project offices may also maintain foreign currency accounts for project-related transactions. To prevent misuse, project offices executing multiple contracts will have to maintain separate books of accounts for each project. Banks will also ensure that all financial transactions are strictly related to the approved business activities.

 

Branches and offices may hold term deposits of up to six months, but only if these represent temporary surpluses. Any change in the designated bank will require mutual consent and certification that all compliance requirements, including annual activity certificates, have been met.

 

The draft sets out a clear procedure for winding up. Branches and offices may remit surplus funds or winding-up proceeds to their overseas headquarters, provided they have complied with tax obligations, settled all liabilities, and secured closure certificates from the Registrar of Companies and relevant sectoral regulators. Banks are tasked with verifying these conditions before facilitating remittances. Accounts will be closed only after compliance, with the RBI notified of each closure.

 

Feedback on the regulations may be submitted to the RBI by Oct. 24, the central bank said.  End

 

Reported by Kabir Sharma

Edited by Avishek Dutta

 

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