RBI Shares Framework To Reclassify FPI As FDI On Breach Of 10% Cap
The RBI’s new framework addresses the reclassification of foreign portfolio investments to foreign direct investments, helping foreign investors adhere to the 10% cap in Indian companies.
The Reserve Bank of India on Monday shared an operational framework for the reclassification of foreign portfolio investment as foreign direct investment, upon the breach of the prescribed limit imposed on FPI.
Under the Foreign Exchange Management Rules, 2019, FPI in a company should be less than 10% of the total paid-up equity capital on a fully diluted basis.
If the 10% cap gets breached, then the foreign portfolio investors have the option of divesting their holdings or reclassifying such holdings as FDI. This reclassification should be completed "within five trading days from the date of settlement of the trades causing the breach", RBI said in a notification.
To enable this reclassification, the foreign portfolio investors would require "necessary approvals from the government", as applicable, including approvals required in case of investment from land bordering countries, the central bank said.
The foreign portfolio investors also need to ensure that the "acquisition beyond prescribed limit is made in accordance with the provisions applicable for FDI", it added.
This means that investment should be in adherence to entry route, sectoral caps, investment limits, pricing guidelines, and other conditions laid down under the FDI rules.
The concurrence of the Indian investee company would also be required for the reclassification of FPI into the FDI, as per the framework shared by the RBI.
"The facility of reclassification shall not be permitted in any sector prohibited for FDI," the notification further stated.
The RBI framework has been shared at a time when FPIs have significantly pulling out of the Indian markets. They remained net sellers of Indian equities for the 30th consecutive session on Friday.
In the five-day period ended Nov. 8, the overseas investors sold equities worth Rs 19,637.6 crore.
Assets under management for foreign investors fell by over $85 billion in October. They began the month with assets under management of $930.5 billion, but ended the month with assets at $845.30 billion, according to data on NSDL collated by NDTV Profit.
