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The Reserve Bank of India (RBI), in consultation with the Government of India and SEBI, has created a new process for shifting Foreign Portfolio Investments to Foreign Direct Investment (FDI) if the investment limit is exceeded. According to the FEM (Non-debt Instruments) Rules, 2019, Foreign Portfolio Investors (FPIs) are limited to owning less than 10% of a company's equity. If an FPI exceeds this limit, it can either divest its holdings or choose to reclassify them as FDI. The new operational framework was officially announced on November 11, 2024, through an RBI circular, effective with immediate effect, which Authorized Dealer (AD) Category-I banks are instructed to follow and report. This operational framework outlines the steps for reclassifying FPI to FDI when an FPI exceeds the prescribed investment limit of 10% in an Indian company. Here are the key points: Restrictions: Reclassification is not allowed in sectors where FDI is prohibited. Approvals Required: FPI must obtain government approvals (including for investments from neighboring countries). The Indian company must agree to the reclassification and ensure compliance with FDI sectoral caps and regulations. Reclassification Process: FPI must inform its custodian and provide necessary approvals and concurrence. The custodian will freeze further purchases in the Indian company until reclassification is complete. If approvals are not obtained, the FPI must divest the excess holdings within five trading days. Reporting: The FPI and the Indian company must report the reclassified investment to the RBI using specific forms (FC-GPR for fresh issuance and FC-TRS for secondary market acquisitions). The AD bank will report the divestment. Transfer of Investment: After reporting, the FPI can transfer its equity holdings to its FDI account. The original date of investment causing the breach will be considered the reclassification date. Timeline: The reclassification or divestment must be completed within the prescribed time. Post-Reclassification: Once reclassified, the investment will be treated as FDI and governed by FDI regulations, regardless of any subsequent reduction in holdings. To conclude: This framework ensures compliance with FDI rules while allowing FPIs to adjust their investment classification within defined timelines.

**RBI Streamlines FPI-to-FDI Reclassification Framework** In a significant regulatory update, the Reserve Bank of India (RBI) has introduced a structured operational framework enabling foreign portfolio investors (FPIs) to convert their holdings into foreign direct investment (FDI) if equity holdings in Indian companies exceed the 10% cap. The framework provides clarity by mandating reclassification within five trading days, subject to approvals from the Indian government and the company, and is applicable only in sectors where FDI is permitted. Additionally, full compliance with reporting requirements under FEMA regulations is mandatory, ensuring adherence to India’s regulatory landscape. This move complements the Securities and Exchange Board of India’s (SEBI) updated guidelines, effective May 30, 2024, further aligning FPI-to-FDI conversion procedures. RBI’s initiative underscores its commitment to fostering transparency and compliance in cross-border investments, bolstering India’s position as a global investment hub. Read more on Mint: https://lnkd.in/gY6A3VUw #RBI #ForeignInvestment #FDI #FPI #Investment #Compliance #RegulatoryUpdate

RBI came out with new guidlines for recategorizing FPI to FDI "Reserve Bank of India (RBI) implemented a new operational framework that allows foreign portfolio investment" Read more-👇 https://lnkd.in/dcunP9Re #ForeignInvestment #FDI #FPI #RBI #InvestmentRegulations #IndiaEconomy #PortfolioInvestment #FinancialFramework #EquityMarket #RegulatoryCompliance Reserve Bank of India (RBI)

🚨 RBI’s New FPI to FDI Reclassification: What It Means for Your Investments 🚨 The Reserve Bank of India (RBI) has introduced a significant operational framework for reclassifying Foreign Portfolio Investments (FPI) to Foreign Direct Investments (FDI), effective as of November 11, 2024. This new framework provides clarity on the procedural aspects of reclassification, benefiting in-house legal counsels, CXOs, and company promoters navigating the complex foreign investment landscape. This framework aims to reduce operational challenges and provide greater regulatory consistency, but it also introduces tight timelines and new compliance hurdles for businesses and investors. What does this mean for your investment strategy? How can you ensure compliance in this evolving regulatory landscape? 👉 Read this article on Chambers and Partners by Kritika Krishnamurthy to deep dive into FPI and FDI in India, titled, 'How RBI’s Latest Framework on FPI to FDI Reclassification Could Impact Your Investments' https://lnkd.in/gRJtEaZw Anuroop Omkar AK & Partners #FPItoFDI #RBIRegulations #ForeignInvestment #FDI #CorporateLaw #InvestmentStrategy #LegalCompliance #FinancialMarkets #CXO #InHouseCounsel #IndiaInvestment #CorporateGovernance #FDIReclassification #LegalTech #FintechRegulations #RegulatoryCompliance

The Reserve Bank of India (RBI) has introduced an operational framework to facilitate the reclassification of Foreign Portfolio Investment (FPI) to Foreign Direct Investment (FDI), as per the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. Under Schedule II of the Rules, FPIs and their investor groups must limit their equity holdings to less than 10% of the total paid-up equity capital on a fully diluted basis. If this limit is breached, the FPI must either divest the excess holdings or reclassify them as FDI within five trading days of the trade settlement date causing the breach. Reclassification is not permitted in sectors prohibited for FDI and requires necessary approvals, including government permissions (especially for investments from countries bordering India) and concurrence from the Indian investee company to ensure compliance with FDI norms, such as sectoral caps, pricing guidelines, and other conditions under Schedule I of the Rules. The process also involves specific reporting obligations to ensure compliance. If the breach occurs due to the issuance of fresh equity instruments, the Indian investee company must file Form FC-GPR. If it results from a secondary market acquisition, the FPI must file Form FC-TRS. Additionally, the Authorised Dealer (AD) Category-I bank must report the reclassified investment as divestment under LEC (FII) reporting. Once these reports are submitted, the FPI must request its custodian to transfer the equity instruments from its demat account for FPI to the demat account for FDI. Upon verifying that all reporting requirements have been fulfilled, the custodian will unfreeze and process the transfer. The date of the trade causing the breach will be considered the reclassification date. Importantly, once reclassified, the investment will be governed by FDI regulations under Schedule I, even if the holding later falls below 10%. This operational framework underscores the importance of timely compliance and regulatory adherence in managing cross-border investments. It also highlights the critical need for structured advisory services to navigate sectoral restrictions, secure approvals, and ensure prompt and accurate reporting. #FPItoFDI #BankingAndFinanceLaw #RBIRegulations #ForeignInvestment #FDICompliance #CorporateLaw #ReportingObligations #CrossBorderInvestments

RBI notifies Operational Framework for Reclassification of FPI to FDI Yesterday, RBI published A.P. (DIR Series) Circular No. 19 containing directions to AD Category-I banks on the aforementioned matter. The FPI seeking to reclassify its investment into FDI shall: (a) only do so in a sector in which FDI is permitted (b) if required, obtain Government approvals to adhere to entry route, sectoral caps, investment limits and pricing guidelines (including land border country investment/holding) (c) the Indian investee company should concur with such reclassification of FPI to FDI (d) the FPI should provide clear reasons of its intent to reclassify its investment from FPI to FDI and provide to its custodian copies of any required approval and the Indian investee company's concurrence (e) the custodian will then move the investment from the FPI demat account to FDI demat account, and the date of the investment by the FPI which breaches the threshold will be considered the date of reclassification, and the entire FPI investment will then be treated as FDI (f) to permit reclassification, the entire investment by the FPI has to be reported as follows: (i) by the FPI in FC-TRS if the FPI has acquire equity instruments from the secondary market, or (ii) by the Indian company in FC-GPR if the investment beyond the limit FPI limit is through a fresh issuance of equity securities; and (iii) by the concerned AD-bank in LEC (FII) reporting. #FPI #FDI #foreigninvestment #privateequity #listedcompanies

📢 Decoding the New RBI & SEBI Framework on FPI to FDI Reclassification The Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) have taken a significant step to clarify the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019. Here's what you need to know about the new framework, introduced via the RBI's circular dated 11 November 2024: 🔑 Key Highlights: 1️⃣ Prohibited Sectors Reclassification is not allowed in sectors where FDI is prohibited. 2️⃣ Mandatory Approvals FPIs must obtain concurrence from the Indian investee company. Approvals are required for investments from countries sharing land borders with India. 3️⃣ Custodian’s Role FPIs must notify custodians of their intent to reclassify. Custodians will freeze equity purchases until the reclassification process is complete. 4️⃣ Reporting Obligations Form FC-GPR: Triggered by fresh equity issuance (filed by the Indian company). Form FC-TRS: For secondary market acquisitions (filed by the FPI). 5️⃣ Effective Reclassification Date The date of the investment breach is treated as the effective date for reclassification. 6️⃣ FDI Treatment Post-Reclassification Once reclassified, all investments will be governed under FDI rules, even if holdings fall below 10%. This operational clarity brings much-needed certainty for FPIs navigating reclassification, ensuring compliance with Indian regulations. 📌 Why This Matters: This framework not only streamlines processes but also enforces stricter compliance to maintain India's regulatory integrity. Let’s connect to explore how this impacts foreign investors and Indian companies alike! 💬 #FPIRules #FDICompliance #IndianRegulations #CustodyServices #GlobalInvesting #RBI #SEBI

The Reserve Bank of India has, vide its circular dated 11 November 2024, with immediate effect, issued the operational framework for reclassification of Foreign Portfolio Investment made by Foreign Portfolio Investors (FPIs) as Foreign Direct Investment (FDI) under the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (NDI Rules), as amended, in case of any breach of the investment limit by the concerned FPIs. The operational framework has been issued to streamline the process of reclassification from portfolio investment to FDI and ensuring better compliance with the NDI Rules by FPIs and Indian listed companies. Read more: https://bit.ly/4fOXBCE

The Reserve Bank of India (RBI) has set rule, for foreign investments under the Foreign Exchange Management Act. The 2019 which states that foreign portfolio investments should be less than 10% of a company’s total paid-up equity capital. If this limit is exceeded then FPI has to either reduce their holdings or convert them into FDI. Where FPI can invest up to 10% where FDI can go beyond 10 % of total paid up capital. So when FPI go beyond this 10% limit the have to either Sell enough shares to get back under the 10% limit or Reclassify the investment as FDI, which involves stricter regulatory rules and guidelines. So the circular states that if they dont want to reduce the holding and reclassify the investment as FDI then: 1. FPIs must notify their intent, prompting custodians to report and freeze additional equity purchases until reclassification completes. 2. They have to take government's approval; 3. Consent of the company in which investment is made Until all approvals are obtained, the FPI cannot make any further purchases in that company. This freeze ensures that the investment remains compliant during the transition period. The same needs to be done within 5 trading days and once the reclassification is done the investment will be considered as FDI even if it goes below 10%.

📢 RBI Circular: Framework for Reclassification of FPI to FDI 📢 The Reserve Bank of India (RBI) has issued an operational framework for the reclassification of Foreign Portfolio Investment (FPI) to Foreign Direct Investment (FDI), as detailed in the Annex of its latest circular (A.P. (DIR Series) Circular No. 19). 🏦 🔹 Key Details: - FPIs, along with their investor groups, must hold less than 10% of total paid-up equity capital on a fully diluted basis. - Any FPI investment exceeding this threshold has the option to divest holdings or reclassify as FDI within five trading days from the trade settlement date that led to the breach. - AD Category-I banks are advised to facilitate reporting in accordance with this framework. This circular is effective immediately. For full details, please refer to the attached Annex. Manan Kalra | R.K. Kalra | Taxonomy Global Services | CA Shaifaly Girdharwal | Vaibhav Goel | Nainshree Goyal #RBI #FDI #FPI #ForeignInvestment #FEMA #Rules