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RBI Introduces Framework for Reclassifying FPI Investments to FDI Upon Breach of Limits.

Banking & Finance | Dated: 19 Nov 2024

On November 11, 2024, the Reserve Bank of India (RBI) announced an operational framework to facilitate the reclassification of investments from Foreign Portfolio Investor (FPI) to Foreign Direct Investment (FDI). This framework will apply in cases where an FPI exceeds the prescribed investment limit, ensuring compliance with regulatory guidelines.

🎯 Key Highlights:

  • - Under the existing Foreign Exchange Management (FEM) (Non-Debt Instruments) Rules, 2019, an investment made by the FPI should not exceed 10% of the total paid-up capital on a fully diluted basis.
  • - As per the new framework, any FPI investing more than the prescribed limit should have the option of divesting their holdings or reclassifying such holdings as FD
  • - The reclassification procedure must occur within 5 trading days from the date of settlement of the trades causing the breach.

💡 Other Important Facts:

  • (i) As per the new framework, the concerned FPI is now required to obtain necessary approvals from the government, including approvals required in case of investment from land bordering countries and the concurrence of the Indian investee company concerned when their equity holdings breach the prescribed limits.
  • (ii) For reclassification, the entire investment held by such FPI should be reported within the timelines specified under FEM (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019.
  • (iii) After reporting this reclassification, the FPI is required to instruct its custodian to transfer the equity instruments from the demat account designated for portfolio investments to the FDI account.

📚 Test Your Knowledge:

Which institution recently introduced a new operational framework for reclassifying FPI investments to FDI?

Correct Answer: RBI

🚀 Quick Recap:

About RBI

  • CEO : Shaktikanta Das
  • Headquarter : Mumbai