India's central bank on Monday released an operational framework for reclassifying equity investments made by foreign portfolio investors (FPI) that exceed the prescribed limit as foreign direct investment (FDI).
Under the existing rules, notified by the government in 2019, investments made by foreign portfolio investors and their investor group should be less than 10% of the total paid-up equity capital on a fully diluted basis, the Reserve Bank of India said.
FPIs investing more than the prescribed limit have the option of divesting their holdings or reclassifying such holdings as FDI, per the rules.
On Monday, the RBI said the reclassification facility will not be permitted in any sector prohibited for FDI.
To opt for the reclassifications, FPIs must obtain the necessary government approvals, including those required in case of investment from land-bordering countries and the acquisition beyond the prescribed limit must be made per the provisions applicable for FDI, the central bank said.
Without the necessary approvals, the investments beyond the limits will have to be divested within the prescribed time, it said.
Once the investment has been reclassified, the FPI's investment in the Indian company will be considered as FDI and shall continue to be treated as such even if the investment falls to a level below 10% subsequently, the RBI said.
The foreign portfolio investor along with its investor group shall be treated as a single person for the reclassification of investment and the directions will become operative immediately, the central bank added.
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