Foreign investment to have separate caps for banking, defence

By: | Published: July 17, 2015 9:56 PM

Foreign institutional investors (FIIs) cannot exceed the cap prescribed for portfolio investments in private sector banks and defence...

FDI cap‘Defence is also a sensitive sector and hence portfolio investments will be limited to the current 24 per cent cap, although the FDI can go up to 100 per cent on case to case basis.’

Foreign institutional investors (FIIs) cannot exceed the cap prescribed for portfolio investments in private sector banks and defence even after introduction of composite cap concept, said an official.

The Commerce and Industry Ministry has clarified that bank being a “sensitive sector”, portfolio investments (FIIS, FPIs, QFIs), which are in the nature of hot money, cannot go beyond the current limit of 49 per cent, a ministry official said.

Similarly, the official said, defence is also a sensitive sector and hence portfolio investments will be limited to the current 24 per cent cap, although the FDI can go up to 100 per cent on case to case basis.

Promising a simpler foreign investment regime, the government yesterday introduced a concept of composite cap for all kinds of overseas inflows including through FDI, FII and NRI routes — a move that would benefit retail companies and stock exchanges among others.

The clarification by the Commerce Ministry came after a section of banks yesterday said that portfolio investors could raise their stakes up to the sectoral limit of 74 per cent.

The official also said investments by NRIs and through Depository Receipts (DRs) can go beyond the 49 per cent limit with the government approval route. This provision was already there in the FDI policy.

Portfolio investments in four sectors – commodity exchanges, credit information companies, infrastructure companies in securities market and power exchanges – can go upto their respective sectoral caps, the official said adding these are not sensitive sectors.

“The ministry has relaxed the norms for these four sectors because they are not sensitive and by giving this relaxation, they would attract foreign investments,” the official added.

For example in Credit Information Companies, portfolio investment is permitted up to 24 per cent but now they can go upto 74 per cent, which is the sectoral cap.

The official clarified that in all sectors, with the exception of the portfolio investments will be limited as per the existing FDI policy.

The government’s decision was aimed at simplification of FDI policy with a view to attracting foreign investments and also improving ease of doing business in India.

Under the existing policy, there are different caps for separate investment categories like FDI, FII and NRIs.

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