Govt notifies norms for composite cap on overseas investment

New Delhi: Seeking to simplify FDI norms, the government today notified changes in the foreign direct investment policy under which there will be a composite cap on overseas investment in various sectors, except in banking and defence segments.

Under the modified norms, all types of direct and indirect overseas investments, whether portfolio or FDI, will be subject to a composite foreign investment cap for that particular sector.

“…there will not no sub-limits of portfolio investment and other kinds of foreign investments in commodity exchanges, credit information companies, infrastructure companies in securities market and power exchanges,” said a release issued by the Department of Industrial Policy and Promotion.

However, in private sector banking, it said, there will a sub-limit of 49 per cent on portfolio investment within the overall foreign investment limit of 74 per cent.

Similarly, in case of defence sector, the portfolio investment has been capped at 24 per cent under the automatic route.

The the press note further said that funds flow through debt instruments like Foreign Currency Convertible Bonds (FCCBs) and Depository Receipts (DRs) will not be treated as foreign investment till they are converted into equity.

It clarified that the equity holding by a person resident outside India resulting from conversion of debt instrument will be reckoned as foreign investment.

The cabinet had earlier this month approved introduction of concept of composite caps with a view to simplify FDI policy and attract foreign investments.

Similarly, in case of defence sector, the portfolio investment has been capped at 24 percent under the automatic route.

The private sector banks such as HDFC bank, ICICI Bank, Yes Bank and Kotak Mahindra Bank have space for more portfolio investments as the current FII investment in these banks are 32.45 percent, 40.25 percent, 44 percent and 35.32 percent respectively as on 15 June. The the press note further said that funds flow through debt instruments like Foreign Currency Convertible Bonds (FCCBs) and Depository Receipts (DRs) will not be treated as foreign investment till they are converted into equity.

It clarified that the equity holding by a person resident outside India resulting from conversion of debt instrument will be reckoned as foreign investment.

The cabinet had earlier this month approved introduction of concept of composite caps with a view to simplify FDI policy and attract foreign investments.

PTI