RBI hikes FII investment cap to 74-100 per cent

Our Bureaus

Mumbai, Sept 20: The Reserve Bank of India (RBI) on Thursday formally announced the hike in the investment limits for foreign institutional investors (FIIs) which, it said, can go beyond 24 per cent to a maximum sectoral cap/statutory ceiling as applicable.

This hike in FII investments in companies will, however, need to have the approval of the Indian company’s board of directors and its shareholders.

The RBI’s move followed the finance minister’s assurance given to the FIIs on Wednesday as part of their teleconference that was primarily aimed at appraising the FIIs on various issues including the government’s ability and resolve to take the reforms further. The FM had assured that the government will raise the cap on FII investment in Indian companies. A finance ministry meeting on Sunday last had also decided on this move.

In its notification issued on Thursday, the RBI said that under section 47(6)(3)(b) of the Foreign Exchange Management Act, 1999 and partial modification thereof, the RBI has made these amendments in the Foreign Exchange Management (Transfer of Issue of Security by a Person Resident outside India) Regulations 2000.
These amendments will come into force with immediate effect.

Accordingly, the FII limit of 24 per cent may be increased up to the sectoral cap/statutory ceiling as applicable, by the Indian company concerned by passing a resolution by its board of directors followed by passing of a special resolution to that effect by its general body.

Welcoming the move by RBI, the chairman of a leading US-based FII, requesting anonymity, said: "It is necessary that the corporates now move ahead and take the government’s decision further by raising this limit from their earlier levels". There are many companies which have not even raised the FII investment limit to the current 49 per cent and still has this limit restricted to the earlier 24 per cent, he said. "There needs to be more clarity on the sectoral investment limits".

Asks the India head of another US-based FII requesting anonymity: "What’s so great about RBI raising the investment limit? Currently, only a handful of FIIs have picked up few companies to invest at the maximum permissible limit of 49 per cent.