Cabinet Liberalises Foreign Investment Norms For NBFC Sector

Expanding the list of non-banking financial companies which can attract foreign direct investment, the Cabinet on Wednesday permitted foreign investment through the automatic route in “other financial services”, if they are under regulators like the Reserve Bank of India and market regulator Securities and Exchange Board of India.

The present regulations on NBFCs stipulate that FDI would be allowed on automatic route for only 18 specified NBFC activities after fulfilling prescribed minimum capitalisation norms mentioned therein.

The Cabinet chaired by Prime Minister Narendra Modi has given approval to amend regulation for foreign investment in NBFCs, an official release said.

This is the third major relaxation in FDI norms since November 2015. In June this year, the government had announced liberalisation in eight sectors, including defense and civil aviation sectors.

The amendment in the Foreign Exchange Management (Transfer or Issue of Security by the Person Resident Outside India) regulations on NBFCs will enable inflow of foreign investment in “other financial services” on automatic route provided such services are regulated by any financial sector regulators (RBI, SEBI, PFRDA) or government agencies.

Foreign investment in other financial services, which are not regulated, can be made on 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.

In the Budget 2016-17 Speech, Finance Minister Arun Jaitley had announced about this liberalisation.

Currently, 100 per cent FDI through automatic route is permitted in 18 NBFC activities including merchant banking, under writing, portfolio management services, financial consultancy and stock broking.

In 2015-16, foreign direct investment in India grew by 29 per cent year-on-year to USD 40 billion.