RBI Plans to Increase Foreign Individual Investment Limit in Listed Companies to 10%
RBI: The Reserve Bank of India (RBI) is planning to increase the investment limit for individual foreign investors in listed companies from 5% to 10%. This move aims to boost foreign capital inflows. This information comes from documents reviewed by Reuters and two senior government officials.
Pressure on Foreign Investment and India's Strategy
Foreign portfolio investors (FPIs) have withdrawn over $28 billion from the Indian stock market due to weak earnings, high valuations, and the impact of US tariffs. In light of this, the government and RBI are working on new reforms to attract foreign investment.
Expanding Benefits Beyond Non-Resident Indians
According to officials, the government is extending benefits previously limited to Non-Resident Indians (NRIs) to all foreign investors. This involves raising the maximum 5% investment limit under the Foreign Exchange Management Act (FEMA), currently applicable to NRIs, to 10% for all individual foreign investors.
RBI's Proposal and Government's Approval
The RBI recently suggested in a letter to the government that these proposals be implemented as soon as possible. This step is being taken in view of recent developments in the external sector and the slowdown in capital inflows. The Ministry of Finance, RBI, and SEBI have been asked for feedback on this matter, but no official comment has been issued yet.
Combined Holding Limit to Also Double
As per the government's plan, the combined holding limit for all individual foreign investors in any Indian listed company will also be increased from the current 10% to 24%. This proposal is in the final stages of discussion between the government, RBI, and SEBI.
SEBI's Concerns Regarding Monitoring
While the government and RBI support this move, market regulator SEBI has pointed out some challenges. SEBI has cautioned that, in conjunction with associates, a foreign investor's holding could exceed 34%, triggering takeover regulations.
Under Indian regulations, if an investor acquires more than 25% stake in a company, they are required to make an open offer for shares held by retail investors. SEBI had warned the RBI in a letter last month that such acquisitions may not be detected without effective monitoring.
