Cabinet approves amendments to Foreign Exchange Management regulations for NBFCs

11 Aug 2016 Evaluate

In another major relaxation in FDI norms since November 2015, the cabinet has given its approval for amendments to the Foreign Exchange Management (Transfer or Issue of Security by the Person Resident Outside India) regulations on NBFCs to this effect. The cabinet has approved the list of non-banking financial companies (NBFCs), which can attract foreign direct investment. The government also gave a green signal to foreign investment through the automatic route in other financial services regulated by any of the financial sector regulators such as the Reserve Bank of India (RBI), Securities and Exchange Board of India (Sebi) and Pension Fund Regulatory and Development Authority (PFRDA).

Under the current regulations, 100 per cent FDI would be allowed on automatic route for only 18 specified NBFC activities including merchant banking, under writing, portfolio management services, financial consultancy and stock broking after fulfilling prescribed minimum capitalisation norms mentioned therein. This is the third major relaxation in FDI norms since November 2015. In June this year, the government had announced liberalisation in eight sectors, including defense and civil aviation sectors.

The amendment in the Foreign Exchange Management (Transfer or Issue of Security by the Person Resident outside India) regulations on NBFCs will enable inflow of foreign investment in other Financial Services on automatic route provided such services are regulated by any financial sector regulators or government agencies. Foreign investment can be made through approval route in other financial services, which are not regulated.

Further, minimum capitalisation norms as mandated under FDI policy have been eliminated as most of the regulators have already fixed minimum capitalisation norms. This will induce FDI and spurt economic activities. It will cover whole India and is not limited to any State/Districts. India’s FDI inflows in 2015-16 increased to record $55.46 billion as against $45.15 billion in 2014-15 and $36.04 billion during 2013-14.

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