FDI in NBFC

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FDI in NBFCs
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FDI in NBFCs
After the liberalization of the Indian economy in
1991, India has witnessed a significant interest
of foreign investors in the Indian Non-Banking
Financial Company (NBFC) sector. While the
provisions of foreign investment and foreign
exchange are now regulated by the FEMA, 2000, the
working and operations of NBFCs and NBFCs
registration are regulated by the Reserve Bank of
India (RBI) within the framework of the RBI
Regulation Act 1934 and the directions issued by
it. The Reserve Bank of India on 9 September
2016 released a notification amending the Foreign
Exchange Management (Transfer and Issue of
Securities to Persons Resident Outside India)
Regulations, 2000, as a measure to make the
foreign investments in the non-banking financial
services sector easier. In order to boost up the
economic activity in financial sectors,
government incorporated some changes in the
budget of 2017-2018 and introduced new FDI norms
for NBFCs.
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RBIs FDI Policy 2017 for NBFC
Key Changes FDI in NBFC FDI in NBFC has seen a
liberal point of view as the demand for funding
in the NBFC sector is huge and growing. The
foreign banks and venture capitalists can now
invest in NBFCs. This is crucial because the
Fintech companies are growing at a very good rate
because of the secure and easy process of
lending. 100 FDI in Automatic Route in NBFC
The new norm states 100 FDI through the
Automatic route for NBFC, under the Section 47 of
the FEMA Act. Investment in the automatic route
was limited to the 18 specified NBFC activities.
Furthermore, investment activities were not part
of these 18 NBFC activities.
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RBIs FDI Policy 2017 for NBFC
Key Changes 100 FDI in Automatic Route in
NBFC Foreign investment was allowed under
automatic route only in the specific non-banking
financial service activities which are Merchant
Banking, Underwriting, Portfolio Management
Services, Stock Broking, Asset Management,
Venture Capital, Custodial Services, Factoring,
Leasing Finance, Housing Finance, Credit Card
Business, Micro Credit, Rural Credit, on-fund
based activities, Investment Advisory Services,
Financial Consultancy, Forex Broking, Credit
Rating Agencies, and Money Changing Business. As
per the new amendment, the investment is now
subject to sectoral regulations and provisions
for Foreign Exchange Management Regulations, 2000
with the amendments incorporated from time to
time.
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RBIs FDI Policy 2017 for NBFC
Key Changes Elimination of Minimum
Capitalization Norms The minimum Capitalization
norms will now be eliminated as most of the
regulators have now got the fixed minimum
Capitalization norms in place. Moreover, the list
on non-fund based activities are said to be
subjected to minimum capitalization
requirements Regulatory Compliance and Risk
Management for NBFC There is a complex and
strict regulatory environment under which
marketplace lending operates. It is not easy to
make NBFCs conform to compliance. Moreover,
foreign funding in NBFCs must meet RBI
compliance. However, RBI has now simplified the
filing process with an online form through RBI
portal.
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RBIs FDI Policy 2017 for NBFC

• Key Relaxations
• 100 FDI through the automatic route is now
  permitted in Other Financial Services as well,
  provided such services are regulated by any
  financial sector regulators.
• Any form of additional capitalization norms
  linked to foreign ownership under FDI policy has
  been eliminated as most of the regulators have
  already fixed minimum capitalization norms and
  which are not regulated by any financial sector
  regulators i.e. unregulated NBFCs will require
  prior government approval.

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NBFC Landscape Now
These recent changes of doing away with the
minimum capitalization norms is a boon since it
will spur economic growth by increasing FDI in
the NBFC sector. Increasing FDI will be
beneficial for the business due to the relatively
easier and faster sanction of loans with
favourable interest rates. This is certainly a
welcome move and is expected to provide a
much-needed boost to this sector. The new set of
FDI norms is intended to bring huge foreign
investments to the Indian shore. Whether
regulated on not, the aim of the Government is to
encourage foreign investment in all sectors. The
difference lies in the fact that the activities
which are not regulated need prior Government
approval.
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NBFCs are slowly taking charge of the financial
needs of Indias unorganized sector!-Shweta
Gupta, Founder, and CEO, MUDS
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Thank You!