What changed
RBI, in consultation with the government, has permitted foreign investment in commodity exchanges with a composite ceiling of 49%. Within this, FDI is capped at 26% and FII at 23%. FDI requires specific government approval, and FII purchases are allowed only in the secondary market.
What it means for you
Banks and lenders dealing with commodity exchanges can now facilitate foreign capital inflows under these limits. The move opens up equity participation for foreign investors, but strict compliance with FMC regulations and government approval for FDI is required. This may increase liquidity and valuation of commodity exchanges.
What you must do
- Update internal compliance checklists to reflect the 49% composite cap and sub-limits for FDI and FII.
- Ensure all FDI proposals for commodity exchanges are routed for specific government approval before processing.
- Restrict FII purchases in equity of commodity exchanges to secondary market transactions only.
- Verify that clients comply with Forward Market Commission regulations alongside FEMA provisions.
- Communicate these changes to relevant constituents and customers handling foreign investment in commodity exchanges.
Who it affects
AD Category-I banks, Commodity exchanges, Foreign investors (FDI and FII), Customers and constituents of AD banks dealing with commodity exchange investments
What is the total foreign investment limit allowed in commodity exchanges?
The composite ceiling is 49%, with FDI up to 26% and FII up to 23%.
Do FII purchases require government approval?
No, FII purchases are allowed only in the secondary market and do not need specific government approval, unlike FDI.
Are there any additional regulatory requirements?
Yes, foreign investment must also comply with regulations issued by the Forward Market Commission.