Master Direction explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Paragraphs 1 to 6 of the Reserve Bank's Master Direction on overseas investment set out the main defined terms, say that overseas investment is under general permission (the automatic route) subject to conditions, explain how an approval-route case is sent to the Reserve Bank, when Central Government approval is needed, when the Reserve Bank's prior approval is needed because of size, and when a no objection certificate must be obtained.
As per the Master Direction, updated as on April 01, 2026, a person resident in India may make or transfer overseas investment or financial commitment under general permission (the automatic route), in a foreign entity engaged in a bona fide business activity. Prior Reserve Bank approval is required for financial commitment by an Indian entity exceeding USD 1 (one) billion in a financial year. A person with an NPA account, a wilful defaulter classification or an investigation must obtain an NOC before making financial commitment or disinvesting.
The text and its footing
The text is the Master Direction - Overseas Investment, FED Master Direction No.15/2024-25, dated July 24, 2024, "Updated as on April 01, 2026", addressed to Authorised Dealer Category - I banks. It is the Reserve Bank's direction to authorised persons under section 11 of the Foreign Exchange Management Act, 1999, and, as its paragraph 4 states, is issued under sections 10(4) and 11(1) and without prejudice to permissions or approvals required under any other law. See our articles on section 10 and sections 11 and 12. It is a direction to banks, not a rule or regulation. It is read with the Foreign Exchange Management (Overseas Investment) Rules, 2022 (G.S.R. 646(E), August 22, 2022) and the Overseas Investment Regulations, 2022 (No. FEMA 400/2022-RB), of which the Rules are not in the sources consulted. Reporting instructions are in Part VIII of the Master Direction on Reporting, also not in the sources consulted. Later amendments and circulars should be checked on the Reserve Bank site. For an overseas investment of your own, our ODI reporting team can map the route.
Paragraph 1: the main terms
Paragraph 1 says reference shall be made to the OI Rules and Regulations for definitions, and then restates the major terms:
| Term | What the Master Direction says |
|---|---|
| Foreign entity | An entity formed, registered or incorporated outside India, including in an IFSC in India, that has limited liability (for example a limited liability company or limited liability partnership), where the liability of the person resident in India is clear and limited. For an investment fund set up as a trust outside India, the liability must not exceed the interest or contribution, and the trustee must be a person resident outside India |
| Strategic sector | Includes energy and natural resources sectors such as oil, gas, coal, mineral ores, submarine cable system, start-ups and any other sector deemed fit by the Central Government. The limited liability structure is not mandatory for entities with core activity in a strategic sector, so ODI can be made in unincorporated entities there |
| Control | The right to appoint a majority of the directors or to control management or policy decisions, exercisable individually or in concert, directly or indirectly, including by shareholding, management rights, shareholders' agreements or voting agreements that entitle them to ten percent or more of voting rights, or in any other manner |
| Indian entity | A company under the Companies Act, 2013, a body corporate incorporated by any law, a Limited Liability Partnership formed under the LLP Act, 2008 or a partnership firm registered under the Indian Partnership Act, 1932; each investor entity is separately considered |
| Subsidiary / step down subsidiary | An entity in which the foreign entity has control; it must also have limited liability where the core activity is not in a strategic sector. Investee entities without control are not step down subsidiaries and need not be reported |
| ODI | (i) Acquisition of unlisted equity capital or subscription as part of the Memorandum of Association of a foreign entity; (ii) investment in 10% or more of the paid-up equity capital of a listed foreign entity; or (iii) investment with control where the investment is less than 10% of a listed foreign entity. Once classified as ODI it stays ODI even if the stake falls below 10% or control is lost |
| Equity capital | Equity shares, perpetual capital or irredeemable instruments, or contribution to non-debt capital that is in the nature of fully and compulsorily convertible instruments. A redeemable, non-convertible or optionally convertible instrument is treated as debt |
| Financial commitment | The aggregate amount of ODI, debt other than OPI and non-fund based facilities extended to all foreign entities, with the three conditions set out in the article on regulations 1 to 4 |
| OPI | Investment, other than ODI, in foreign securities. OPI cannot be made in unlisted debt instruments, in a security issued by a person resident in India who is not in an IFSC, in derivatives unless the Reserve Bank permits, or in commodities including Bullion Depository Receipts. Separate sub-paragraphs deal with delisted equity, listed Indian companies, unlisted Indian entities, overseas investment funds, resident individuals within the LRS limit and SEBI-registered funds |
| Listed | Listed on a recognised stock exchange outside India |
The meanings above are as the Master Direction states them; the Rules themselves are not in the sources consulted.
Paragraph 2: exemption
The OI Rules, Regulations and Directions do not apply, and general permission is available, for acquisition or transfer of any investment outside India made as per rule 4 of the OI Rules. Rule 4 is not in the sources consulted.
Paragraph 3: the automatic route and the approval route
3(1). A person resident in India may make or transfer any investment or financial commitment outside India under general permission (the automatic route) subject to the OI Rules, Regulations and Directions. Overseas investment may be made in a foreign entity engaged in a bona fide business activity, directly or through a step down subsidiary or special purpose vehicle.
3(2). The person intending to make any financial commitment fills Form FC from the Master Direction on Reporting, with the requisite documents, and approaches the designated AD bank.
3(3). In an approval-route case, the applicant approaches the designated AD bank, which forwards the proposal to the Regional Office of the Reserve Bank with its specific recommendations, through the relevant form on the PRAVAAH portal. Before forwarding, the bank submits the relevant sections of Form FC in the online OID application, and quotes the transaction number. The proposal carries: background and brief details; reasons for seeking approval, mentioning the extant FEMA provisions; the bank's observations on the prima facie viability of the foreign entity, benefits to India, the financial position and track record of the Indian entity and the foreign entity, and any other material observation; the bank's recommendations with confirmation that the board resolution or equivalent is in place; a diagram of the organisational structure with all subsidiaries horizontally and vertically, their stake and status (operating company or SPV); a valuation certificate for the foreign entity, if applicable; and other relevant documents numbered, indexed and flagged.
Paragraph 4: Central Government approval
Applications for overseas investment or financial commitment in Pakistan, or other jurisdictions advised by the Central Government, or in strategic sectors or specific geographies under rule 9 of the OI Rules, are forwarded by AD banks to the Reserve Bank, as per the laid-down procedure, for onward submission to the Central Government. Rule 9 is not in the sources consulted.
Paragraph 5: Reserve Bank approval by size
Financial commitment by an Indian entity exceeding USD 1 (one) billion (or its equivalent) in a financial year requires prior approval of the Reserve Bank "even when the total financial commitment of the Indian entity is within the eligible limit under the automatic route".
Paragraph 6: NOC
6(1). Any person resident in India having an account appearing as a Non-Performing Asset, classified as wilful defaulter, or under investigation by a financial sector regulator or investigative agency, shall obtain an NOC from the lender bank, regulatory body or investigative agency concerned, in accordance with rule 10 of the OI Rules, before making financial commitment or undertaking disinvestment.
6(2). Where an Indian entity had issued a guarantee in accordance with FEMA provisions before an investigation began or the account was classified NPA or wilful defaulter, and later has to honour the obligation, the remittance on invocation is not fresh financial commitment and no NOC is needed.
Example
Mahanadi Power Ltd plans financial commitment in a foreign entity with a core activity in submarine cable systems, a strategic sector under paragraph 1, so the limited-liability structure is not mandatory. Because strategic sector investments are within rule 9 of the OI Rules (not in the sources consulted), paragraph 4 sends its application through the AD bank and the Reserve Bank to the Central Government. Another company, Shivalik Foods Pvt Ltd, has an account classified NPA with its bank; before it makes financial commitment it must obtain an NOC from the lender bank under paragraph 6(1). A third, Gomti Infra Ltd, plans commitments totalling more than USD 1 billion in a year, so under paragraph 5 it needs the Reserve Bank's prior approval even if the total sits within its eligible limit.
Common mistakes
- Treating the automatic route as unconditional. Paragraph 3(1) subjects it to the Rules, Regulations and Directions.
- Forgetting the NOC when an account is NPA or an investigation is pending.
- Missing the USD 1 billion trigger, which applies per financial year.
- Assuming a foreign entity can be unincorporated in any sector; only in strategic sectors is the limited-liability structure not mandatory.
Need help choosing the route?
Whether a case falls under the automatic route, the Reserve Bank approval route or the Central Government route depends on the sector, the size and the lender's position. Our ODI reporting team can read your facts against paragraphs 1 to 6 and prepare the application.
Key takeaways
- Overseas investment is under general permission, subject to the Rules, Regulations and Directions.
- Approval-route cases go through the designated bank to the Regional Office via PRAVAAH.
- Financial commitment above USD 1 billion in a financial year needs prior Reserve Bank approval.
- NPA, wilful defaulter and investigation cases need an NOC.
- Rules 4, 9 and 10 of the OI Rules are not in the sources consulted.
Read next
- Rights issue, bidding, pricing, transfer and restructuring: paragraphs 7 to 14
- Financial commitment by an Indian entity: paragraph 21
- ODI: overseas direct investment under FEMA
- Setting up business outside India: complete guide
Disclaimer: Based on the rules, regulations and Reserve Bank Master Directions under the Foreign Exchange Management Act, 1999 that this article names, each in the version and up to the date stated in the article, as consulted on 2 October 2026. Some texts are third-party copies or older prints and are identified as such. Limits, forms and time limits change by amendment and circular; later changes should be checked on the Reserve Bank and Gazette sites. This article is general information, not legal advice; check the official text before acting.