What changed
Earlier, only 100% foreign-owned NBFCs with US$ 50 million capitalisation could set up step-down subsidiaries without additional capital. Now, NBFCs with foreign investment between 75% and 100% (i.e., above 75% up to 100%) also qualify, subject to the same US$ 50 million minimum capitalisation. The minimum capitalisation condition for downstream subsidiaries under DIPP's Consolidated FDI Policy is waived for these entities.
What it means for you
This change widens the pool of NBFCs eligible to expand through step-down subsidiaries without fresh capital infusion, encouraging more foreign investment in the sector. Banks acting as AD Category-I must update their compliance checks for FDI proposals, as the revised condition applies to all new investments. It also reduces the capital burden for NBFCs with high foreign ownership, potentially boosting their operational flexibility.
What you must do
- Update internal FDI processing guidelines to reflect the revised condition for NBFCs with foreign investment above 75% and up to 100%.
- Inform customers and constituents about the amended step-down subsidiary rules as per the circular.
- Ensure that any FDI proposal for NBFC step-down subsidiaries meets the US$ 50 million minimum capitalisation requirement.
- Monitor DIPP's Press Note No.9 (2012 Series) for any further clarifications.
Who it affects
AD Category-I banks handling FDI remittances for NBFCs, NBFCs with foreign investment above 75% and up to 100%, Foreign investors in the NBFC sector
What is the key change in this circular?
The circular expands eligibility for setting up step-down subsidiaries without additional capital to NBFCs with foreign investment above 75% and up to 100%, provided they have a minimum capitalisation of US$ 50 million. Earlier, only 100% foreign-owned NBFCs had this benefit.
Does this circular affect existing NBFCs with foreign investment?
Yes, NBFCs with foreign ownership between 75% and 100% can now set up step-down subsidiaries without bringing in extra capital, as long as they meet the US$ 50 million minimum capitalisation condition. Existing NBFCs should review their structure to see if they qualify.
What should AD Category-I banks do with this circular?
Banks must update their internal procedures to apply the revised condition for FDI in NBFCs, inform their customers, and ensure compliance with the US$ 50 million capitalisation requirement for step-down subsidiaries.