DIPP notifies 100 percent FDI in other financial services by NBFCs

In order to attract foreign capital into the country, the Department of Industrial Policy & Promotion (DIPP), under the commerce and industry ministry, has notified 100 percent foreign direct investment (FDI) in 'other financial services' carried out by non-banking finance companies (NBFCs).

DIPP has said that the government has liberalized its FDI policy in Other Financial Services and non-banking finance companies (NBFCs). The other financial services will include activities which are regulated by any financial sector regulator - RBI, SEBI, IRDA, Pension Fund Regulatory and Development Authority, National Housing Bank 'or any other financial sector regulator as may be notified by the government in this regard. However, such investment would be subject to conditionalities, including minimum capitalisation norms, as specified by the concerned regulator or government agency.

The two key relaxations sought to be introduced vide this Notification are firstly, opening up of all the sub-sectors falling within the non-banking financial services sector for up to 100% foreign participation and secondly, removing any form of additional capitalization norms linked to foreign ownership prescribed under the FDI Policy, thereby aligning the capitalization norms with those prescribed by the relevant regulators regulating these activities.

However, DIPP has not specified the sectors which have been opened up for automatic route. The present regulations on NBFCs stipulate that FDI would be allowed on automatic route for only 18 specified NBFC activities after fulfilling prescribed minimum capitalization norms mentioned therein. Currently, 100 percent FDI through automatic route is permitted in 18 NBFC activities including merchant banking, under writing, portfolio management services, financial consultancy and stock broking. In 2015-16, foreign direct investment in India grew by 29 percent year-on-year to $ 40 billion.