RBI eases rules for FPIs to reclassify investments as FDI
With an aim to further enhance the ease of doing business in India, the Reserve Bank of India (RBI) has relaxed norms by finalizing an operational framework for reclassification of Foreign Portfolio Investment made by foreign portfolio investors (FPIs) to Foreign Direct Investment (FDI) under Foreign Exchange Management (Non-debt Instruments) Rules, 2019, when they exceed the 10% ownership limit in an Indian company.
Previously, foreign portfolio investors had to either divest their excess holdings or seek a cumbersome reclassification process. Now, the RBI has streamlined this process, providing a clear pathway for FPIs to retain their investments in India, subject to certain conditions.
In order to reclassify their investment, FPIs will need to obtain necessary approvals from the government and the Indian company. The entire process, including reporting and transfer of shares, must be completed within a specified timeframe. Once reclassified as FDI, the investment will be governed by FDI regulations and will continue to be treated as FDI even if the ownership falls below 10% in the future.
