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RBI allows FDI up to 100% in other financial services under automatic route
Oct-21-2016

The Reserve Bank of India, opening the gates for more foreign investments in the country has allowed foreign direct investment (FDI) up to 100% under automatic route in ‘Other Financial Services’ carried out by NBFCs. The apex bank also simplified rules for easier entry of venture capital funds to startup ventures and also eased external commercial borrowing regulations.

RBI in its notification said that in financial services activities which are not regulated or partly regulated or where there is lack of clarity regarding regulatory oversight, foreign investment will be allowed up to 100% under the government approval route. However, it did not specify the sectors which have been opened up for automatic route. The present regulations on Non-Banking Finance Companies (NBFCs) stipulate that FDI would be allowed on automatic route for only 18 specified NBFC activities after fulfilling prescribed minimum capitalization norms mentioned therein.

The other salient features of the revised regulatory framework are, in financial services activities which are not regulated or partly regulated by any financial sector regulator or where there is lack of clarity regarding regulatory oversight, foreign investment will be allowed up to 100% under the Government approval route. Further, downstream investment by any entity engaged in other financial services will be subject to extant sectoral regulations and provisions of Principal Regulations. Other Financial Services will include activities which are regulated by any financial sector regulator viz. Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulatory and Development Authority, Pension Fund Regulatory and Development Authority, National Housing Bank or any other financial sector regulator as may be notified by the Government of India in this regard. Such foreign investment shall be subject to conditionality’s, including minimum capitalization norms, as specified by the concerned Regulator/ Government Agency.

In order to attract foreign investment in startups, the central bank has also said foreign venture capital investors registered with Sebi will not henceforth require any approval from RBI for investment in sectors such as biotechnology, IT, seed research and development, dairy and poultry, and production of bio-fuels.

 


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