RBI hands FEMA compounding for overseas investment to regional offices

The Reserve Bank of India delegated its power to compound foreign exchange contraventions on overseas investment, borrowing and lending, and guarantees to selected regional offices, in a circular to authorised dealer banks dated 23 October.

Until now those applications went to the bank's Central Office, while regional offices already compounded certain foreign direct investment cases, the A.P. (DIR Series) Circular No. 28/2026-27 says. The bank describes the change as a measure for promoting customer service.

For overseas investment, the office depends on the prefix of the Unique Identification Number of the foreign entity: Ahmedabad (AH), Bengaluru (BG), Mumbai (BL, BY or PJ), Kolkata (BN, CA, GA or GH), New Delhi (CG, JM, JR, KA, ND, PT or WR), Hyderabad (HY) and Chennai (KO or MA). Cases with no number stay with the Cell for Effective implementation of FEMA at the Central Office in Mumbai. Borrowing, lending and guarantee cases go to the regional office with jurisdiction over the applicant's registered office or domicile, and lending or guarantees to a company's own overseas venture follow the overseas investment route. Applications that span categories handled by different offices go to the Central Office cell. The overseas investment route covers the foreign security regulations of 2000 and 2004 and the overseas investment rules and regulations of 2022; the other route covers the borrowing and lending regulations of 2000 and 2018 and the guarantee regulations of 2000 and 2026.

Compounding lets a person who has contravened the Foreign Exchange Management Act apply to the Reserve Bank to settle the contravention for a sum. Under the bank's Master Directions on compounding, an application carries a fee of ₹10,000 plus GST and the order is to be passed within 180 days of a complete application. The directions followed the 2024 compounding rules described in the bank's circular of 1 October 2024, and the circular says the directions will be updated.

The circular was issued on the same day as the bank's leverage ratio floors. For treasury and compliance teams at Indian groups with overseas subsidiaries, it changes where a compounding application is filed; it does not change what counts as a contravention or how the amount is calculated. The same teams have new US guidance to read, after OFAC amended 11 answers on blocking, rejecting and reporting payments.