In a bid to increase dollar inflow, the Reserve Bank of India has relaxed investment norms for existing foreign investors holding substantial stake in an Indian company. The move will help increase their stakes without the regulator’s prior approval.
Earlier, a non-resident was not permitted to acquire shares on the stock exchanges under the FDI (Foreign Direct Investment) scheme and had to seek prior permission from the RBI before increasing stake. This created the risk of a rise in stock prices of the companies as the news had potential to come out into the open before the acquisition deal was approved, making it more expensive for the investor. The easing of curbs is expected to shore up foreign exchange reserves. Forex reserves depleted by $2.23 billion to $275.49 billion in the week ended August 30.
The rupee also fell to a life-time low of 68.80 against the dollar on August 28 due to heavy capital outflow.
The RBI measure will also reduce time taken by foreign investors in making investments in Indian listed stocks, making it more attractive for the investor.
The RBI notification has also specified that the payment for acquiring shares through this route could be through inward remittances through the normal banking channels, debit to the NRE/FCNR account of the investor maintained with an authorised dealer or a bank, or debit to non-interest bearing Escrow account (in Indian rupees) maintained in India with a bank.
It could also be paid out of the “dividend payable by Indian investee company, in which the said non-resident holds control,” the central bank said. The pricing of such acquisition should be in accordance with the pricing guidelines under FEMA, it said.
beena.parmar@thehindu.co.in