The Reserve Bank of India (RBI) introduced on Monday a new framework for reclassifying foreign portfolio investments (FPI) that exceed the limit as foreign direct investments (FDI).
According to the rules set in 2019, FPIs should not hold more than 10 per cent of the total equity capital. FPIs can either divest their excess holdings or reclassify them as FDI. However, reclassification is not allowed in sectors where FDI is prohibited.
FPIs must obtain government approvals for reclassification, especially for investments from bordering countries. The RBI emphasised that acquisitions exceeding the limit must comply with FDI regulations.
Investments exceeding limits must be divested promptly without approvals. Once reclassified, FPI investments in Indian companies will be treated as FDI, even if they fall below 10 per cent.
The reclassification applies to the FPI and its investor group as a single entity, effective immediately, according to the RBI.
Attribution: Reuters