FPI
TO FDI RECLASSIFICATION: ECONOMY
NEWS: RBI
issues new framework for reclassification of FPI to FDI
WHAT’S
IN THE NEWS?
If an FPI exceeds the prescribed equity limit in an
Indian company, it must seek government approval and the investee company’s
consent to reclassify the holdings as FDI. This process must adhere to FDI
regulations and conditions.
RBI’s
New Framework on FPI (Foreign Portfolio Investment} to FDI (Foreign Direct
Investment) Reclassification
Approval
Requirement for Reclassification
- FPIs exceeding a 10% equity
holding in an Indian company must obtain necessary government approvals
for reclassification to FDI, especially if investment originates from
countries bordering India.
Adherence
to FDI Regulations
- FPIs must comply with FDI
norms upon reclassification, including sectoral caps, entry routes,
pricing guidelines, and investment limits.
Investee
Company’s Concurrence
- FPIs need the Indian
investee company’s concurrence for reclassification, ensuring adherence to
sector-specific FDI caps and prohibited sectors.
Options
for Exceeding Limits
- FPIs breaching the
investment limit can either divest or reclassify their holdings as FDI
within five trading days of the breach.
Freezing
Further Purchases
- Custodians are required to
freeze additional purchase transactions by the FPI in the company’s equity
until the reclassification process is finalized.
Restrictions
on Prohibited Sectors
- Reclassification from FPI to
FDI is not permitted in sectors where FDI is restricted or prohibited.
Source:
https://indianexpress.com/article/cities/mumbai/fpi-fdi-new-framework-rbi-9665039/