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RBI Sets New Rules for Converting Excess FPI Investments to FDI

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The Reserve Bank of India (RBI) has introduced a new set of rules to handle cases where foreign portfolio investors (FPIs) exceed the 10% ownership limit in Indian companies. The changes aim to simplify the process of converting excess FPI holdings into foreign direct investment (FDI).

Under the current rules, FPIs can hold up to 10% of a company’s total equity. If an investor crosses this limit, they have two choices: sell off the extra shares or reclassify the entire holding as FDI within five trading days.

The RBI’s new framework requires investors to get approval from the government and the Indian company involved before making this switch.

However, this option is not available for sectors where FDI is banned. Once the necessary approvals are obtained, the FPI must report the reclassification and move its shares from an FPI demat account to an FDI demat account. The Securities and Exchange Board of India (SEBI) has also issued guidelines to ensure a smooth process. The new rules take effect immediately, providing a clear path for handling investment breaches.

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