India Business Journal - RBI, SEBI unveil framework for reclassifying excess FPI into FDI

MONEY

RBI, SEBI unveil framework for reclassifying excess FPI into FDI

IBJ Bureau
Nov 12, 2024

The Reserve Bank of India (RBI) on Monday issued an operational framework for reclassification of investment made by a foreign portfolio investor (FPI) to foreign direct investment (FDI) if the entity breaches the prescribed limit. Markets regulator SEBI too has issued a circular on procedure for reclassification of FPI investment to FDI.

Currently, an investment made by an FPI along with its investor group should be less than 10 per cent of the total paid-up equity capital on a fully-diluted basis.

Any FPI investing in breach of the prescribed limit has the option of divesting one’s holdings or reclassifying such holdings as FDI, subject to the conditions specified by the RBI and the SEBI within five trading days from the date of settlement of the trades causing the breach.

The RBI has issued an operational framework for reclassification of foreign portfolio investment by FPI to FDI.

According to the framework, the FPI concerned will have to take necessary approvals from the government and concurrence of the Indian investee company concerned.

However, the facility of reclassification shall not be permitted in any sector prohibited for FDI, the RBI has said.

For reclassification, the entire investment held by such FPI should be reported within the timelines as specified under the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019.