What changed
Previously, non-residents could not acquire shares on stock exchanges under the FDI scheme (Schedule 1 of FEMA 20). This circular permits such acquisitions if the investor already holds control as per SEBI takeover rules. Payment options now include escrow accounts and dividend proceeds, besides traditional remittance or NRE/FCNR debit.
What it means for you
Banks must facilitate a new route for non-resident FDI through stock exchange purchases, expanding client options. This liberalization could increase cross-border M&A activity via open market transactions. AD banks need to ensure compliance with sectoral caps, pricing guidelines, and reporting under FEMA.
What you must do
- Update internal procedures to process stock exchange share purchases by non-residents under FDI scheme.
- Verify that the non-resident investor holds control per SEBI takeover regulations before processing.
- Ensure payment methods (remittance, NRE/FCNR debit, escrow, dividend) comply with FEMA deposit and pricing rules.
- Monitor resultant investments for sectoral cap, entry route, and reporting compliance.
Who it affects
AD Category-I banks handling non-resident transactions, Non-resident investors (including NRIs) seeking FDI via stock exchanges, Listed Indian companies with foreign takeover targets
Can a non-resident without existing control buy shares under this circular?
No. The circular requires the non-resident to have already acquired and continue to hold control in accordance with SEBI takeover regulations before purchasing shares on the stock exchange under the FDI scheme.
What payment methods are allowed for these share purchases?
Payment can be made via inward remittance, debit to NRE/FCNR account, debit to a non-interest bearing escrow account with an AD bank, or out of dividend payable by the investee company (credited to a designated rupee account).
Does this circular change sectoral caps or entry route requirements?
No. The circular explicitly states that original and resultant investments must comply with existing FDI policy and FEMA regulations regarding sectoral cap, entry route, reporting, and documentation.