Can NRIs and FIIs invest in Indian companies
NRIs (Non-Resident Indians), PIOs (Persons of Indian Origin) and Foreign Institutional Investors (FIIs) can invest in the primary and secondary capital markets in India through the portfolio investment scheme (PIS). NRIs and FIIs/PIOs can purchase shares/ debentures of Indian companies through stock exchange houses in India.
Regulations for NRI/ FIIs investment in Indian companies
- NRIs and PIOs are allowed to acquire a maximum 10% of the paid up capital of the Indian company and FIIs up to 24%. The ceiling is overall 20% of the paid up capital in case of public sector banks, including the State Bank of India.
- If approved by the general body of the company passing a resolution to that effect, the upper limit of 10% for NRIs/PIOs can go up to 24%. The ceiling of 24% for FIIs can be increased to up to statutory ceiling/ sectoral cap, subject to approval of the board and resolution about the same passed by the general body of the company.
- The investment limit for FIIs is not linked to the ceiling of 10/24 per for NRIs/ PIOs.
- The equity shares and convertible debentures of the company are available, within the stipulated ceilings, for purchase under PIS subject to:
- Whether repatriation or non-repatriation basis, the total purchase of all NRIs needs to be within an overall ceiling limit of (a) 24% of the company’s total paid-up equity capital and (b) 24% of the total paid-up value of each series of convertible debenture; and
- The Investment made by an NRI/ PIO on repatriation basis in the equity shares and convertible debentures not exceeding 5% of the paid-up equity capital of the company or of five percent on the total paid-up value of each series of convertible debentures issued by the company.
- NRIs/ FIIs are allowed to invest in unlisted securities in India.
- They can also invest their proprietary funds.
- FIIs who get specific approval from SEBI can invest 100% of their portfolios in debt securities. This type of investment may be in already listed or to be listed corporate debt securities or in dated government securities. They are considered to be part of the overall limit on external commercial borrowing.
How NRI/ FII investments are monitored
The Reserve Bank of India monitors the cap on NRI/FII investments in Indian companies on a daily basis. For effective monitoring of NRI/FII investment, the RBI prescribes fixed cut-off points, which are two percent lower than the actual ceilings.
For instance, the RBI has fixed the cut-off point at 8% for companies that allow NRIs to invest up to 10% of the companies’ paid up capital. The cut-off limit for public sector banks is 18%. Likewise, the cut-off limit for companies with a 24% ceiling is 22%, and 28% for companies with a 30% ceiling, and so on.
Once the equity shares of an Indian company purchased by NRIs/FIIs reach the cut-off point i.e. 2% below the overall limit, the Reserve Bank of India alerts all designated bank branches not to buy any more equity shares of that company on behalf of NRI/FII investors without prior approval of the Reserve Bank of India. The link officer is required to inform the Reserve Bank of India about the total number and value of equity shares/ convertible debentures of the company the bank wishes to buy on behalf of its NRI/PIO or FII clients. The Reserve Bank of India acts appropriately.
To invest in Indian securities, foreign investors can also purchase Global Depository Receipts, Foreign Currency Convertible Bonds and Foreign Currency Bonds issued by Indian companies which are listed, traded and settled overseas. They can also invest in Indian securities outside the FII route, even if the investors are not registered as FII. However, case by case approval from the Foreign Investment Promotion Board (FIPB) and the Reserve Bank of India, or only by the RBI, is required for such investments.
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