The Reserve Bank of India on Monday issued a framework for reclassifying investments made by a foreign portfolio investor from foreign direct investment (FDI) if the business violates the prescribed limit.
Currently, the investment made by the foreign portfolio investor and his group of investors (FPI) should be less than 10 percent of the total amount of the equity capital paid up on a fully diluted basis.
Any FPI that invests in violation of the prescribed limit has the option to divest its assets or reclassify such investments as FDI as per the criteria specified by the RBI and Sebi within five trading days from the settlement date of the trade causing the violation.
RBI has issued a framework for restructuring of foreign portfolio investment by FPI into FDI.
According to the draft, the concerned FPI will have to take necessary approvals from the government and concurrence with the concerned Indian investment company.
However, the restructuring facility will not be allowed in any sector that is not allowed for FDI, RBI said.
For rescheduling, all investments held by such FPI must be reported within the prescribed periods as specified under the Foreign Exchange Management (Method of Settlement and Reporting of Non-Debt Instruments) Rules, 2019.
After completing the reporting, the FPI should approach its manager with a request to transfer the equity instruments of the Indian company from its demet account held for holding foreign portfolio investments to its demet account held for holding FDI, the RBI said.
The guidelines have come into effect immediately, the central bank added.
