Under new rules, Foreign Venture Capital Investors (FVCIs) can invest in Indian startups without prior permission of the RBI.
Sebi-registered FVCIs have also been permitted to invest in unlisted firms in sectors like biotechnology, nanotechnology and dairy without prior permission of the RBI.
The regulatory provisions have been amended to “further liberalise and rationalise the investment regime for FVCIs and to give a fillip to foreign investment in the startups”.
As per the amendment, FVCIs will not require any approval from RBI and can invest in “equity or equity linked instrument or debt instrument” issued by an Indian company in certain sectors whose shares are not listed. The sectors are biotechnology, IT related to hardware and software development, nanotechnology, seed research and development, research and development of new chemical entities in pharmaceutical sector, dairy, poultry, production of bio-fuels, hotel-cum-convention centres and infrastructure.
FVCIs can also open a foreign currency account and/or a rupee account for the purpose of making transactions. Also, there will be no restriction on transfer of any security/instrument held by the FVCI to any person resident in or outside India.
The Reserve Bank also permitted 100 per cent foreign direct investment in ‘Other Financial Services’ carried out by NBFCs, a move which will help attract foreign capital into the country.
Other Financial Services will include activities which are regulated by any financial sector regulator viz. Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulatory and Development Authority, Pension Fund Regulatory and Development Authority, National Housing Bank or any other financial sector regulator as may be notified by the Government of India in this regard.
The present regulations on Non-Banking Finance Companies (NBFCs) stipulate that FDI would be allowed on automatic route for only 18 specified NBFC activities after fulfilling prescribed minimum capitalisation norms mentioned therein.
Currently, 100 per cent FDI through automatic route is permitted in 18 NBFC activities including merchant banking, under writing, portfolio management services, financial consultancy and stock broking.
