Before the year ends, now RBI issues its big rules. The Reserve Bank of India has issued a new rule for the investment of foreign portfolio investors (FPIs). Under this, if the investment of an entity crosses the prescribed limit, then it will be re-categorized as Foreign Direct Investment (FDI). This means that FPI will be converted into FDI if the investment limit is crossed.
How much can foreign portfolio investors invest?
At present, the investment made by foreign portfolio investors (FPIs) with their investor group (FPI) should be less than 10% of the total paid-up equity capital (including all shares held in various options of the company). Any FPI making investments breaching the prescribed limit has the option to sell its stake or re-categorize such stake as FDI within five business days from the date of settlement of the infringing transaction, subject to RBI and Securities and Exchange Board of India (SEBI) conditions.
RBI issued outline
The RBI has issued an operational framework for re-categorizing foreign portfolio investment by FPIs into FDI. As per the framework, the FPI concerned will have to obtain necessary approvals from the government and the consent of the Indian investor company concerned. For re-categorization, the entire investment made by such FPIs should be reported within the timelines specified under the Foreign Exchange Management (Modes of Payment and Non-Credit Instruments) Regulations, 2019.
RBI’s new rule comes into force with immediate effect
The central bank said that after furnishing the information, FPIs should contact their custodians and request to transfer the equity channels of the Indian company from their Foreign Portfolio Investment Demat account to the demat account created to hold their FDI. These instructions have come into force with immediate effect, the RBI said.
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