Exit option for foreign investors; RBI eases FDI rules

Relaxing FDI norms, the Reserve Bank of India today gave foreign investors an option to exit their investments by selling their holdings of equity or debt.

“It is expected that this relaxation will facilitate greater FDI flows into the country,” the RBI said in a statement.

According to the modified norms, foreign direct investment (FDI) contracts can now have optionality clauses, which allows investors to exit, subject to the conditions of minimum lock—in period and without any assured returns.

Until now, only equity shares or compulsorily and mandatorily convertible preference shares or debentures could be issued to person’s resident outside India under the FDI policy and these instruments were not allowed to have any optionality clause, the RBI said.

FDI in India declined by about 15 per cent to $12.6 billion (Rs 74,971 crore) in April—October. According to the Department of Industrial Policy and Promotion, FDI in the same period a year earlier was $14.78 billion.

Food processing industries received $2.14 billion, services $1.36 billion, pharmaceuticals $1.08 billion, automobile $784 million and construction development $699 million.

In a separate notification, the RBI said banks may include a close NRI relative as a joint holder in an individual resident’s existing or new bank account on an “either or survivor” basis.

Such accounts will be treated as resident bank accounts for all purposes and all regulations applicable to a resident bank account will be applicable.

Cheques, instruments, remittances, cash, card or any other proceeds belonging to the NRI close relative will not be eligible for credit to this account, it said.

Such joint account holder facility may be extended to all types of resident accounts, including savings bank accounts, it added.

COMMENT NOW