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The Reserve Bank of India (RBI) with the view of liberalizing the foreign direct investment (FDI) procedures and policies with regard to transfer of shares and to do away with requirement of seeking approvals from multiple regulators, RBI has made certain amendments.
The RBI on November 4, 2011 issued a notification announcing that the transfer of shares between Resident and Non-Resident would no longer require its permission in several key areas such as financial services.
The RBI permission has also been done away with for transfer of shares between Residents and Non-Residents in cases where the Foreign Investment Promotion Board (FIPB) has already given its clearances and the SEBI guidelines are met.
However, RBI has made it very clear that the above relaxation is subject to satisfaction of certain conditions such as compliance with extant FDI Policy and FEMA regulations in terms of FDI sectoral caps and conditionalities that may include minimum capitalisation among others. Moreover, the pricing must be compliant with various SEBI regulations pertaining to IPO, Book building, block deals, delisting, substantial acquisition and others.
Earlier, the RBI’s prior approval was required for transfer of shares by a Resident to a Non-Resident and vice versa if the transfer does not conform to the pricing guidelines.
RBI’s approval was also necessary in cases where the transfer of shares required the prior approval of the FIPB as per the extant FDI policy or if the Indian company whose shares are being transferred is engaged in rendering any financial service or the transfer falls under the purview of the provisions of SEBI (SAST) Regulations.
While FDI inflows have gone up by 95 percent to $17.37 billion between April and August, the government and the RBI want to maintain robust foreign exchange reserves as volatility in the stock market has led to outflows, reports ET.
These steps have been taken “as a measure to further liberalise and rationalise the procedures and policies governing foreign direct investment in India,” the RBI said.
This is a welcome step by RBI to do away with multiple approvals in cross border transfer of shares. This notification will among others benefit companies engaged in financial service sector.