RBI, Sebi unveil rules for converting excess investment by FPIs into FDI
ECONOMY & POLICY

RBI, Sebi unveil rules for converting excess investment by FPIs into FDI

The Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi) introduced new guidelines for foreign portfolio investors (FPIs) to convert excess equity investments into foreign direct investments (FDI). If an FPI exceeds the prescribed 10% cap on a company’s equity, the new rules stipulate that the FPI must seek government approval and consent from the investee company.

Under the Foreign Exchange Management Act (Fema), FPIs are typically permitted to hold up to 10% of a company's paid-up equity capital. Any breach of this limit gives FPIs the option to either divest their excess stake or reclassify it as FDI, subject to certain conditions. The reclassification process must be completed within five days from the settlement of the trade.

Once reclassified, the entire FPI investment will be considered as FDI, even if the stake falls below 10% later. Experts noted that the new framework clarifies that government approval is mandatory before making additional investments beyond the prescribed threshold. Additionally, FPIs must explicitly state their intent to reclassify their investments as FDI.

This move is expected to allow greater foreign investment in Indian companies by providing a mechanism for FPIs to exceed the 10% limit. However, reclassification to FDI is restricted in certain sectors, particularly where government approvals and sectoral caps apply. The new rules also highlight the necessity of compliance with FDI norms and approvals, especially in cases involving investments from countries sharing a land border with India.

The Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi) introduced new guidelines for foreign portfolio investors (FPIs) to convert excess equity investments into foreign direct investments (FDI). If an FPI exceeds the prescribed 10% cap on a company’s equity, the new rules stipulate that the FPI must seek government approval and consent from the investee company. Under the Foreign Exchange Management Act (Fema), FPIs are typically permitted to hold up to 10% of a company's paid-up equity capital. Any breach of this limit gives FPIs the option to either divest their excess stake or reclassify it as FDI, subject to certain conditions. The reclassification process must be completed within five days from the settlement of the trade. Once reclassified, the entire FPI investment will be considered as FDI, even if the stake falls below 10% later. Experts noted that the new framework clarifies that government approval is mandatory before making additional investments beyond the prescribed threshold. Additionally, FPIs must explicitly state their intent to reclassify their investments as FDI. This move is expected to allow greater foreign investment in Indian companies by providing a mechanism for FPIs to exceed the 10% limit. However, reclassification to FDI is restricted in certain sectors, particularly where government approvals and sectoral caps apply. The new rules also highlight the necessity of compliance with FDI norms and approvals, especially in cases involving investments from countries sharing a land border with India.

Related Stories

Gold Stories

Next Story
Resources

Schindler named among Forbes’ World’s Best Employers 2026

Schindler has been named among Forbes’ World’s Best Employers 2026, a global ranking recognising companies for their workplace environments.Compiled by Forbes in partnership with Statista, the ranking is based on independent employee feedback, including whether employees would recommend their organisation to friends and family.The company said the recognition reflected its focus on creating a workplace where employees can develop their expertise and build careers. ..

Next Story
Infrastructure Urban

India needs an export-execution mindset: Vishesh Jain

Interview with Vishesh Jain, Founder & CEO, EximpleWhat gaps in India’s global trade ecosystem led you to build Eximple, and what problem did you see businesses struggling with most?Eximple came out of a problem that all three founders had seen from different choke points in the trade ecosystem. India has millions of MSMEs and manufacturers, and many of them can make products that are genuinely competitive on quality. Yet only a small fraction is able to build meaningful international businesses. In our experience, the gap is usually not manufacturing capability; it is the ability to exe..

Next Story
Building Material

Nuvoco reports 13.5% revenue growth in Q2 FY27

Nuvoco Vistas Corp. Ltd. reported consolidated revenue of Rs 27.9 billion for Q2 FY27, up 13.5% year on year. Cement sales volume rose 9% to 4.7 million tonnes (MMT), while EBITDA increased 11% to Rs 4.11 billion.The company said it began its cement operations in 2014 with a 2.3 MMT per annum (MMTPA) operation at Nimbol. It now aims to reach 35 MMTPA of cement capacity by FY28, nearly 15 times its initial capacity. Its portfolio spans cement, ready-mix concrete and modern building materials.On sustainability and cost efficiency, Nuvoco partnered with CleanMax for a 46.4 MW wind-solar hybrid re..

Advertisement

Subscribe to Our Newsletter

Get daily newsletters around different themes from Construction world.

STAY CONNECTED

Advertisement

SPECIAL OFFER
QR Code