New Delhi
The Reserve Bank of India (RBI) on Monday has issued a new framework allowing foreign portfolio investors (FPIs) to reclassify their investments as foreign direct investment (FDI) if they breach the prescribed 10% limit in Indian companies. This option provides an alternative to divesting shares and comes with specific approval and reporting requirements.
Under the new rules, FPIs exceeding the 10% threshold have five trading days to decide whether to divest or reclassify their holdings as FDI. To proceed with reclassification, FPIs must obtain approval from the Indian government and the investee company, and ensure that their sector allows FDI.
The process involves reporting the investment as per the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019, and transferring the equity from the FPI’s demat account to a demat account designated for FDI holdings.
This move comes into effect immediately and offers greater flexibility for foreign investors, while maintaining regulatory oversight to prevent excessive foreign control in sectors prohibited for FDI.
