Cabinet relaxes FDI norms via automatic route for NBFCs

The Dollar Business Bureau

Extending the list of NBFCs that can attract foreign investment, the Cabinet has allowed FDI via automatic route for ‘other financial services’, if these are under regulatory bodies such as Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI).

Currently, the NBFCs (Non-Banking Financial Companies) regulations specify that FDI (Foreign Direct Investment) would be permitted on automatic route for just 18 listed activities of NBFC, after fulfilling the mentioned minimum norms for capitalisation.

Chaired by Prime Minister Narendra Modi, the Cabinet has given its nod for amendments in regulations for FDI in NBFCs, according to an official release.

Since November last year, this is the third key relaxation in FDI rules. This year, in June, the government of India had announced FDI relaxation in eight segments, including civil aviation and defence.

The amendment in the norms on NBFCs under the Foreign Exchange Management (Transfer or Issue of Security by the Person Resident Outside India) will help in attracting foreign investment in ‘other financial services’ via automatic route provided that those services are under the regulations of government agencies or financial regulators like RBI, SEBI, PFRDA, etc.

FDI in other financial services that are not under regulations can be done via approval route.

“Further, minimum capitalisation norms as mandated under FDI policy have been eliminated as most of the regulators have already fixed minimum capitalisation norms. This will induce FDI and spurt economic activities. It will cover whole India and is not limited to any state/districts,” the release said.

Presently, 100 percent FDI via automatic route is allowed in 18 NBFC activities that include merchant banking, portfolio management services, under writing, stock broking and financial consultancy.

In the last fiscal, India’s FDI inflows grew to $40 billion, an increase of 29 percent year-on-year.