100% FDI in “Other Financial Services”

100% FDI in “Other Financial Services” - a move to attract more foreign capital in India
 
The Reserve Bank of India issued a notification permitting 100 percent foreign direct investment in ‘Other Financial Services’ carried out by non-banking finance firms under the automatic route.
 
According to the provisions of present regulations, foreign investment in NBFC up to 100 percent through automatic route was allowed only for following 18 activities:
(i)         Merchant Banking
(ii)        Underwriting
(iii)       Portfolio Management Services
(iv)       Investment Advisory Services
(v)        Financial Consultancy
(vi)       Stock Broking
(vii)      Asset Management
(viii)     Venture Capital
(ix)       Custodian Services
(x)        Factoring
(xi)       Credit Rating Agencies
(xii)      Leasing & Finance
(xiii)     Housing Finance
(xiv)     Forex Broking
(xv)      Credit Card Business
(xvi)     Money Changing Business
(xvii)    Micro Credit
(xviii)   Rural Credit
 
“On a review, in consultation with the Government of India, it has been decided to allow foreign investment up to 100% under the automatic route in ‘Other Financial Services’. 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 conditionalities, including minimum capitalisation norms, as specified by the concerned Regulator/ Government Agency,” RBI said in a circular.
 
However, RBI did not specify the activities which have been opened for 100 percent foreign investment under the automatic route in the notification.
 
Further, other silent features of the revised regulatory framework include -

• 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.
• Downstream investment by any entity engaged in ‘Other Financial Services” will be subject to extant sectoral regulations and provisions of Principal Regulations.

During the speech to present the budget for the year 2016-17 Finance Minister, Shri Arun Jaitley said, “FDI will be allowed beyond the 18 specified NBFC activities in the automatic route in other activities which are regulated by financial sector regulators.”

Author is the member of the ICAI and may be contacted at pbhch.d@gmail.com, +91-9650422164