FDI in listed NBFCs set to take auto route
Currently, foreign investment in a listed NBFC has to be approved by the RBI.
By MK Venu and Subhomoy Bhattacharjee, TNN |
NEW DELHI: The foreign investment regime in non-banking segments of the financial sector is to be liberalised further. Foreign direct investment (FDI) in existing non-banking finance companies and other financial services like insurance, will not require fresh government approval as these companies have already been subjected to the relevant rules at the time of incorporation.
Subsequently, a foreign investor can automatically buy shares of these companies through the secondary market. Transfer of shares between residents and non-residents will be done automatically.
A Cabinet note moved by the government says, ���There should be no need to continue with the requirement of prior government approval for acquisition of shares in an Indian company in the financial services sector���, because the initial investment for these entities comes under the automatic route, subject to regulations.
It goes on to say, in such circumstances, ���acquisition of shares of such listed Indian companies could also be placed under the automatic route, subject to Sebi guidelines and regulations���.
Currently, foreign investment in a listed NBFC has to be approved by the RBI. Henceforth, this would be subjected only to the normal Sebi regulations regarding acquisitions. This would also apply to insurance companies, which may be listed on the stock markets in future. For example, a foreign investor who buys shares in such a company through the secondary market will not require prior government approval.
Subsequently, a foreign investor can automatically buy shares of these companies through the secondary market. Transfer of shares between residents and non-residents will be done automatically.
A Cabinet note moved by the government says, ���There should be no need to continue with the requirement of prior government approval for acquisition of shares in an Indian company in the financial services sector���, because the initial investment for these entities comes under the automatic route, subject to regulations.
It goes on to say, in such circumstances, ���acquisition of shares of such listed Indian companies could also be placed under the automatic route, subject to Sebi guidelines and regulations���.
Currently, foreign investment in a listed NBFC has to be approved by the RBI. Henceforth, this would be subjected only to the normal Sebi regulations regarding acquisitions. This would also apply to insurance companies, which may be listed on the stock markets in future. For example, a foreign investor who buys shares in such a company through the secondary market will not require prior government approval.
This has been okayed by the RBI, with the rider that such a facility cannot be extended to the banking sector. The relaxation is significant, as this would facilitate the transfer of shares to foreign investors within the given FDI cap, provided the companies become listed entities.
The government currently allows 100% FDI under the automatic route for 19 activities in the non-banking finance companies like merchant banking, stock broking, venture capital, housing finance, forex broking, leasing and finance and financial consultancy.
But the big benefit could accrue to companies in sectors like insurance and the emerging pension funds sector. While none of the insurance companies are listed as yet, the clause could provide the Indian partners in many of them an opportunity to cash out, if they are unwilling to commit more money in the ventures.
As of now the government gives an automatic approval to all proposals for acquisition of shares in an Indian company, except for those in the financial services sector. This includes banking and non-banking finance companies, and insurance companies. Pension funds could also come under this category.
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