Govt. to Revisit FDI Norms, Ask Reserve Bank to Come up with Fresh Formulations
May 26 – The Indian government will consider reversing changes made last year regarding the establishment of subsidiaries by 100% foreign owned non-banking finance companies (NBFCs).
Before the revisions made last year, wholly foreign owned NBFCs that brought in US$50 million in capital could launch subsidiaries at will for specific activities without having to bring in additional funds.
These regulations changed last year when the Indian government changed its FDI guidelines, taking away the subsidiary privileges given to these foreign owned NBFCs and requiring that established subsidiaries comply with new sector regulations, including a minimum capitalization.
The affected wholly foreign owned NBFCs then had to bring on new capital to fund their downstream subsidiaries according to the new regulations. Since many NBFCs utilize a specific subsidiary for each particular activity, such as forex, financial consulting, mortgages, venture capital, and stock trading, the new capital requirements quickly added up.
“Requirements to bring US$50 million at every level and in every downstream 100% subsidiary would be unreasonable and out of sync with business reality,” Akash Gupt, executive director at PwC, told The Economic Times.
Recent meetings between top officials from the Ministry of Finance, Reserve Bank of India, and the Department of Industrial Policy and Promotion have indicated that this requirement may be relaxed relatively soon, as it is unlikely to face any opposition. The Reserve Bank of India will then come out with revised regulations that are more reasonable for these NBFCs.
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