What changed
The pricing guidelines for transfer of equity instruments from residents to non-residents and vice versa have been revised. For listed shares, the minimum transfer price is now linked to the preferential allotment price instead of the earlier 'ruling market price'. For unlisted shares, fair valuation by a SEBI registered Category-I Merchant Banker or a Chartered Accountant as per discounted free cash flow method is required. The changes apply to all sectors, including financial services.
What it means for you
Banks must ensure that all FDI-related share transfers comply with the revised pricing benchmarks, which align transfer pricing with preferential allotment rules for listed shares. This reduces ambiguity and standardizes valuation across sectors. Lenders facilitating such transfers need to update their internal compliance checklists and advise clients accordingly.
What you must do
- Update internal procedures for verifying share transfer pricing under FDI to reflect the new benchmarks.
- Advise AD Category-I bank customers and constituents about the revised pricing guidelines effective immediately.
- Ensure that for listed shares, the transfer price from resident to non-resident is not less than the preferential allotment price.
- For unlisted shares, require fair valuation certification by a SEBI registered Category-I Merchant Banker or a Chartered Accountant as per discounted free cash flow method.
- Review all pending share transfer applications to confirm compliance with the revised circular.
Who it affects
All Category-I Authorised Dealer Banks, Indian companies issuing or transferring equity instruments to non-residents, Foreign investors (FIIs, NRIs, foreign nationals, incorporated non-resident entities), Chartered Accountants and SEBI registered Category-I Merchant Bankers involved in share valuation
What is the key change in pricing for listed shares transferred from a resident to a non-resident?
The minimum price for such transfers must now be at least the price applicable for a preferential allotment of shares, replacing the earlier 'ruling market price' benchmark.
Does this circular apply to transfers in the financial services sector?
Yes, the revised pricing guidelines apply to all sectors, including financial services (banks, NBFCs, insurance, etc.), as per the Annex-I of the circular.
When do these revised guidelines become effective?
The directions are operative with immediate effect from May 4, 2010, the date of the circular.