Regulatory Updates #15: RBI liberalises FDI in CICs, FIPB to be phased out & more

Bar & Bench will bring to you the latest regulatory and policy updates from different ministries and regulatory authorities. In this edition of the Bar & Bench Regulatory Updates, we analyse the latest notifications by RBI and possible phasing of the FIPB.

Overseas investors may now buy stake in MCX

The Reserve Bank of India has withdrawn the restrictions placed on the purchase of shares of the Multi Commodity Exchange (MCX) by allowing overseas investors to buy equity shares after foreign shareholding in the bourse fell below the prescribed threshold caution limit.

The RBI has also cancelled all approvals received against the said scrip.

This has had a huge impact on the stock price of MCX. On the day of the announcement, the stock closed at Rs. 857.90 apiece on BSE, up 0.30 per cent. Today, the stock price jumped 7.37 per cent to Rs. 921 on BSE.

FDI in Credit Information Companies liberalised 

The RBI has raised the Foreign Direct Investment  (FDI) limit  in Credit Information Companies (CIC) from 74 per cent to 100 per cent if the ownership of the investor is ‘well diversified’ i.e. where one or more shareholders each hold not more than 10 percent voting rights in the company. FDI continues to be 49 per cent if the investor’s ownership is not well diversified.

The RBI will also consider 100 per cent investment in case ownership is not well diversified, but at least 50 per cent of the directors of the CIC it is investing in India are either resident Indian, non-resident Indians or people of Indian origin.

RBI has also allowed Foreign Institutional Investors (FII)/Foreign Portfolio Investors (FPI) investments on conditions that a single entity should not directly or indirectly hold more than 10 per cent equity and any acquisition in excess of 1 per cent must be reported. These FIIs and FPIs shall also not seek a representation on the board of directors of the CICs they invest in, based upon their shareholding.

In case the investor entity is a wholly owned subsidiary of an investment holding company, the norms for FDI, FII and FPI will be applied to the operating group company that is engaged in Credit information business.

Foreign Investment Promotion Board likely to shut operations

The Government is looking at phasing out the Foreign Investment Promotion Board (FIPB), the single-window clearance system introduced in 1991  turned-bureaucratic stronghold. This was told to the Times of India by Economic affairs secretary Shaktikanta Das in an interview.

This appears to be yet another measure to improve the ‘ease of doing business in India’

As the country has progressed towards a more liberal regime in terms of FDI, the government has realised most of the sectors at present fall under the automatic route, which accounts for almost 90 per cent of the investment proposals, making FIPB redundant. And looking forward, it will only get further liberalised. Once implemented, RBI will have to look into any Foreign Exchange Management Act violations.

To keep a check on the limits, existing regulators will have to act as gatekeepers for foreign investments in India barring sectors like defence, where there is no regulator and there are ‘security considerations’.