The Hindu Business Line : FDI limit in credit info cos to be cut to 49%

New Delhi March 30 With increased concern about protection of credit related information, the Government has decided to reduce the foreign investment limit in credit information services companies from existing 100 per cent to 49 per cent. This would ensure that the Indian partners would have a larger say in the running of the company.

It has also been decided that permission to set up credit information companies would require case-by-case approval from Foreign Investment Promotion Board (FIPB) and regulatory clearance from the Reserve Bank of India (RBI).

As of now credit information services is one of the 19 specified activities for non-banking finance companies (NBFCs) where 100 per cent foreign direct investment is allowed through the RBI's automatic approval route.

It has been decided that with the introduction of the 49 per cent FDI cap, the activity of credit information services would be removed from the list of permitted activity of NBFCs.

The guidelines for credit information companies (CICs) have been finalised by the Finance Ministry and have been sent to the Department of Industrial Policy and Promotion (DIPP). DIPP would formally notify the guidelines through a press note in April, sources said.

The new guidelines stipulate that foreign institutional investors (FIIs) would also be allowed to invest in CICs up to a limit of 24 per cent of the equity but only in those CICs that are listed on Indian stock exchanges. FII investments, would, however, be within the overall limit of 49 per cent for foreign investment.

It further states that no single FII would be allowed to hold, directly or indirectly, more than five per cent of the equity of any CIC. Secondly, any acquisition in excess of one per cent will have to be reported to the RBI.

The guidelines further states that FIIs investing in CICs shall not have board positions in the CIC.

It has also been decided that this new policy on FDI in CICs would be reviewed after one year from the date it comes into effect in the light of the experience gained.

As of now India does not have a developed credit information service market. The only organisation that is functioning in this area is the Credit Information Bureau (India) Ltd (CIBIL). However, though CIBIL has a 20 per cent foreign equity component it is not registered with the RBI as a CIC and would require to get registered as a specialised CIC, officials said.

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