The Reserve Bank of India has finalised an operational framework for the reclassification of Foreign Portfolio Investment made by Foreign Portfolio Investors (FPI) to Foreign Direct Investment (FDI) under Foreign Exchange Management (Non-debt Instruments) Rules, 2019 in case of any breach of the investment limit by the FPIs concerned.
The operational framework has been issued after consultation with the Government of India and Security and Exchange Board of India (SEBI) to further enhance the ease of doing business in India.
The framework states that the FPI investing in breach of the prescribed limit shall have the option of divesting their holdings or reclassifying such holdings as FDI.
Schedule II of the FEM (NDI) Rules, 2019 prescribed that investments made by foreign portfolio investors along with its investor group shall be less than 10 percent of the total paid-up equity capital on a fully diluted basis.
RBI has issued the aforesaid directions under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999 which empowers the central bank to issue directions to authorised person
The effect of the direction is prospective and immediate.
