Boost for NBFCs as 100 % FDI allowed in more financial services

rbiIn a recent move to attract foreign capital in the country, the Reserve Bank of India (RBI) allowed cent percent foreign direct investment (FDI) in “Other Financial Services” carried out by Non-Banking Finance Companies (NBFC).

“On a review, in consultation with the Government of India, it has been decided to allow foreign investment up to 100 per cent under the automatic route in Other Financial Services,” a notification from the country’s central bank read.

Elaborating further on plans afoot to regulate the “Other Financial Service”, the RBI said,

“Other Financial Services will include activities which are regulated by any financial sector regulator viz. Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulatory and Development Authority, Pension Fund Regulatory and Development Authority, National Housing Bank or any other financial sector regulator as may be notified by the Government of India in this regard.”

The notification also clarifies that foreign investments under the initiative would be subject to conditionalities, including minimum capitalisation norms, as specified by the concerned regulator or government agency.

The RBI, however, did not specify the sectors which have been opened up for foreign investments via automatic route.

As per present regulations on NBFCs, FDI through automatic route has been allowed for only 18 specified NBFC activities after fulfilling prescribed minimum capitalisation norms mentioned therein.

The revised regulatory framework also includes downstream investment by any entity engaged in Other Financial Services and will be subject to extant sectoral regulations. This liberalisation was announced by Finance Minister Arun Jaitley in his Budget 2016-17 speech.

Currently, 100 per cent FDI through automatic route is permitted in 18 NBFC activities including merchant banking, under writing, portfolio management services, financial consultancy and stock broking.

In 2015-16, foreign direct investment in India grew by 29 per cent year-on-year to $40 billion.

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