What changed
Previously, foreign investment in commodity exchanges required government approval for both FDI and FII components. Now, only the FDI part needs FIPB approval; registered FIIs can invest without government nod. Additionally, RBI clarified that the 100% automatic route FDI for NBFC 'leasing and finance' applies solely to financial leases, not operating leases.
What it means for you
For banks and lenders, this simplifies compliance for FII clients investing in commodity exchanges—no need to route through FIPB for FII investments. The leasing clarification tightens the definition, meaning only financial leasing activities qualify for automatic FDI; operating leases require different treatment. This impacts how AD banks advise clients on structuring foreign investments.
What you must do
- Update internal procedures to reflect that FII investments in commodity exchanges no longer require government approval; only FDI component needs FIPB clearance.
- Advise clients that 100% automatic route FDI in NBFC 'leasing and finance' is restricted to financial leases; operating leases are not covered.
- Ensure all customer communications and KYC checks align with the revised FDI policy for commodity exchanges and NBFC leasing.
- Monitor FEMA regulations for the forthcoming formal amendment to Notification No. FEMA 20/2000-RB.
Who it affects
Category-I Authorised Dealer Banks, Foreign investors (FIIs and FDI entities) in commodity exchanges, NBFCs engaged in leasing and finance activities, Customers/constituents of AD banks seeking foreign investment in these sectors
Does this circular change the overall FDI cap for commodity exchanges?
No. The composite ceiling of 49% (26% FDI + 23% FII) remains unchanged. Only the approval requirement for FIIs is removed.
What is the difference between financial lease and operating lease for FDI purposes?
Financial lease is treated as a financing activity eligible for 100% automatic FDI under NBFC 'leasing and finance'. Operating lease is not considered a financial activity and does not qualify under this route.