Venkatesh Chitla’s Post

**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

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 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

SEBI’s New Framework: Simplifying Reclassification of Foreign Portfolio Investors (FPI) to Foreign Direct Investors (FDI) SEBI’s recent Circular (No. SEBI/HO/AFD/AFD-POD-3/P/CIR/2024/152 dated November 11, 2024) introduces a structured framework for reclassifying FPI investments as FDI. Here’s a quick snapshot of what’s new: 🔴 Existing Rules:- Under the current Regulations, FPIs were permitted to hold up to 10% of an Indian Company’s total paid-up equity capital. If this threshold is exceeded, FPIs were previously required to either divest the excess holdings or reclassify them as FDI. ✅ What's new? FPIs exceeding 10% of paid-up equity capital in an Indian Company can now opt for reclassification to FDI under the FEMA guidelines. The RBI's updated framework now streamlines this process, requiring reclassification to be completed within 5 trading days of breaching the limit, subject to necessary approvals from both the Indian government and the concerned company. 🔹 Process Update: 1) FPIs must notify their Custodian of their intent to reclassify. 2) Custodians will report this to SEBI and freeze further equity purchases during the transition. 3) Post-compliance, equity instruments will move to a designated FDI demat account. Compliance first:- 🔴 The RBI mandates complete reporting under the Foreign Exchange Management Regulations, 2019. 🔴 Sector-Specific Restrictions: Reclassification is not permitted in sectors where FDI is restricted. 🔥 Impact:- This update ensures greater clarity and compliance for cross-border investments, aligning with India’s FDI rules without compromising transparency. Effective immediately, the framework addresses inadvertent breaches of the 10% threshold, providing a regulatory pathway for FPIs to retain their investments. Let’s continue fostering a robust and compliant #investmentecosystem in India! #fpi #fdi #rbi #sebi #foreigninvestments #india #capitalmarket

🚨 RBI’s New Game-Changer for Foreign Investments! 🚨 The RBI has introduced a powerful framework for seamless conversion of Foreign Portfolio Investments (FPIs) to Foreign Direct Investments (FDI) if the 10% limit in Indian companies is breached. 🎯 The latest rules for converting Foreign Portfolio Investments (FPIs) to Foreign Direct Investments (FDI) bring enhanced compliance—and custodians are key partners in this! 📊 Custodian Role Highlights: 1️⃣ Real-Time Monitoring: Custodians track the 10% FPI cap, helping prevent threshold breaches. ⚠️ 2️⃣ Smooth Transition: Guiding FPIs on divesting or converting excess holdings, ensuring alignment with RBI’s framework. 🔄 3️⃣ Regulatory Compliance: Custodians ensure transactions adhere to RBI and SEBI policies, safeguarding sectoral restrictions. Key Impacts: 1️⃣ Streamlined Compliance: Clear pathways to stay within regulatory limits. ✅ 2️⃣ Sector Protection: Limits FDI in restricted sectors, preserving sectoral balance. 3️⃣ Market Liquidity Dynamics: Could drive divestment, impacting market flow. With these new rules, custodians aren’t just facilitators—they’re critical in maintaining regulatory harmony in India’s investment landscape. 🌏 #CustodyBusiness #FPI #FDI #RBI 💡 Investor Tip: Closely monitor your holdings to maintain compliance and choose between divesting or converting as FDI—timing is key!

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)

#SEBI's New framework. This article examines SEBI's new framework, issued in 2024, allowing Indian mutual funds to invest in overseas mutual funds and unit trusts with up to 25% exposure to Indian securities, facilitating global diversification while ensuring domestic stability. #Key conditions include: ‣ Pooled Investment Vehicles ‣ Equal Investor Rights ‣ Independent Fund Management ‣ Mandatory Quarterly Disclosures In cases where an overseas fund exceeds the 25% Indian securities cap, SEBI mandates a six-month rebalancing period, followed by a liquidation period if compliance isn't met. Non-compliance leads to penalties, such as halting new subscriptions and scheme launches. This structured approach creates a transparent and secure investment environment, enabling Indian mutual funds to access international markets responsibly. #Explanation SEBI's new framework for Indian mutual funds investing in overseas mutual funds and unit trusts: #KeyHighlights:* 1. *25% Indian Securities Cap*: Overseas funds can have up to 25% exposure to Indian securities. 2. *Pooled Investment Vehicles*: Investment through pooled vehicles only. 3. *Equal Investor Rights*: Equal rights for Indian and foreign investors. 4. *Independent Fund Management*: Overseas fund management must be independent. 5. *Quarterly Disclosures*: Mandatory quarterly disclosures. #Non-Compliance Penalties:* 1. *Rebalancing Period*: 6 months to rebalance if Indian securities exceed 25%. 2. *Liquidation Period*: If non-compliance persists. 3. *Halting New Subscriptions*: No new subscriptions allowed. 4. *Scheme Launches*: No new scheme launches. #Benefits 1. *Global Diversification*: Indian mutual funds can access international markets. 2. *Domestic Stability*: Ensures stability in domestic markets. 3. *Transparent Environment*: Structured approach creates transparency. 4. *Secure Investment*: Enables responsible investment. #Implications 1. *Increased Investment Opportunities*: For Indian mutual funds. 2. *Risk Management*: Diversification reduces risk. 3. *Regulatory Oversight*: SEBI ensures compliance.

#TaxmannAnalysis #SEBI This article examines SEBI's new framework, issued in 2024, allowing Indian mutual funds to invest in overseas mutual funds and unit trusts with up to 25% exposure to Indian securities, facilitating global diversification while ensuring domestic stability. Key conditions include: ‣ Pooled Investment Vehicles ‣ Equal Investor Rights ‣ Independent Fund Management ‣ Mandatory Quarterly Disclosures In cases where an overseas fund exceeds the 25% Indian securities cap, SEBI mandates a six-month rebalancing period, followed by a liquidation period if compliance isn't met. Non-compliance leads to penalties, such as halting new subscriptions and scheme launches. This structured approach creates a transparent and secure investment environment, enabling Indian mutual funds to access international markets responsibly. Download/Read More: https://lnkd.in/dueNpP74 [4 Mins | Read Time] Drafted by Taxmann's Advisory & Research Team | Corporate Laws #TaxmannUpdates #TaxmannAdvisory #MutualFunds #Investment #OverseasFunds

#TaxmannAnalysis #SEBI This article examines SEBI's new framework, issued in 2024, allowing Indian mutual funds to invest in overseas mutual funds and unit trusts with up to 25% exposure to Indian securities, facilitating global diversification while ensuring domestic stability. Key conditions include: ‣ Pooled Investment Vehicles ‣ Equal Investor Rights ‣ Independent Fund Management ‣ Mandatory Quarterly Disclosures In cases where an overseas fund exceeds the 25% Indian securities cap, SEBI mandates a six-month rebalancing period, followed by a liquidation period if compliance isn't met. Non-compliance leads to penalties, such as halting new subscriptions and scheme launches. This structured approach creates a transparent and secure investment environment, enabling Indian mutual funds to access international markets responsibly. Download/Read More: https://lnkd.in/dueNpP74 [4 Mins | Read Time] Drafted by Taxmann's Advisory & Research Team | Corporate Laws #TaxmannUpdates #TaxmannAdvisory #MutualFunds #Investment #OverseasFunds

📢 Important Update from RBI: New Framework for Reclassifying Foreign Portfolio Investment (FPI) to FDI The Reserve Bank of India (RBI) has issued an operational framework to guide the reclassification of Foreign Portfolio Investment (FPI) to Foreign Direct Investment (FDI) in cases where investment exceeds the prescribed 10% threshold of a company’s equity capital on a fully diluted basis. 🏦📜 This framework outlines: 1️⃣ The approval requirements for FPIs intending to breach the limit and reclassify. 2️⃣ Mandatory compliance with FDI sectoral caps, pricing guidelines, and prohibited sector norms. 3️⃣ A detailed process for reporting, freezing, and reclassifying such investments. With this, FPIs now have the option to regularize their holdings effectively, ensuring compliance with Indian investment regulations. 🔗 This move is a significant step towards streamlining cross-border investments while maintaining robust compliance structures. #RBI #FPI #FDI #ForeignInvestment #Regulations #IndianEconomy #InvestmentFramework #CrossBorderInvestment #FinanceUpdates #Policy #Compliance #BusinessNews You can read the full circular and operational guidelines here: https://lnkd.in/dQtKsQE3