Cabinet liberalises FDI norms for non-banking financial companies

The Budget for 2016-17 had stated that FDI will be allowed beyond the 18 specified NBFC activities under the automatic route for other activities which are regulated by financial sector regulators.

By: ENS Economic Bureau | New Delhi | Published: August 11, 2016 2:38:47 am

The Union Cabinet on Wednesday approved changes in norms for foreign direct investment (FDI) for non-banking financial companies (NBFCs), enabling inflow of foreign investment via automatic route in “other financial services” regulated by any of the financial sector regulators such as the Reserve Bank of India (RBI, Securities and Exchange Board of India (Sebi) and Pension Fund Regulatory and Development Authority (PFRDA).

The Budget for 2016-17 had stated that FDI will be allowed beyond the 18 specified NBFC activities under the automatic route for other activities which are regulated by financial sector regulators.

At present, regulations for NBFCs stipulate that FDI would be allowed on automatic route for only 18 specified NBFC activities including merchant banking, under writing, portfolio management services, financial consultancy and stock broking.

“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,” an official release said. Foreign investment can be made through approval route in other financial services, which are not regulated.

This is the third major relaxation in FDI norms since November 2015. In June, the government had announced changes in FDI norms across nine key sectors including ease in FDI caps for defence, aviation and food processing sectors.

Among other changes, the government did away with the need for prior government approval for up to 74 per cent FDI brownfield investment in pharmaceuticals and removed the condition of access to ‘state-of-the-art technology’ for FDI in the defence sector. The government last made changes to the FDI policy in November 2015, when norms for 15 sectors including banking, defence and construction were changed.

India’s FDI inflows in 2015-16 increased to record $55.46 billion as against $45.15 billion in 2014-15 and $36.04 billion during 2013-14.

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