RBI Unveils New Framework for Foreign Investment Reclassification

The Reserve Bank of India introduces guidelines allowing foreign portfolio investors exceeding 10% in a company to convert their stakes into foreign direct investment (FDI). This move aims to streamline foreign investment processes and requires governmental and investee company approval for reclassification.

The Reserve Bank of India announced a key policy shift on Monday, allowing foreign portfolio investors (FPIs) who exceed the 10% investment limit in a company to convert their holdings into foreign direct investment (FDI). The previous rules capped FPIs and their investor groups to under 10% of the company's paid-up equity on a fully diluted basis.

To facilitate this transition, the RBI has released an operational framework for reclassifying FPIs as FDI. FPIs intending to make this switch must secure approvals from both the government and the concerned Indian investee company. This measure is effective immediately, although restrictions apply in sectors where FDI is prohibited.

FPIs are required to clearly express their intention for reclassification and provide relevant approvals. According to the RBI, once an FPI is reclassified as FDI, it will remain classified as such even if the holding decreases below the 10% threshold later. (ANI)

(With inputs from agencies.)