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Business Standard
6 days ago
- Business
- Business Standard
RBI's LRS review to align with wider economic, geopolitical conditions
The Reserve Bank of India's (RBI's) initiative to review the Liberalised Remittance Scheme (LRS) framework is part of a routine exercise to align it with wider economic and geopolitical conditions, experts said. In its annual report released on Thursday, the RBI said it has initiated a comprehensive framework review and is examining various aspects, including the annual remittance limit, permissible purposes, transaction modes, and currency options. The LRS scheme was introduced in 2004, allowing all resident individuals to remit up to $25,000 per financial year for any permissible current or capital account transaction, or a combination of both, free of charge. This limit was gradually revised to $250,000 on 26 May 2015. 'Given the current dynamic economic environment, evolving capital flows, and the emergence of new-age transactions — such as investments in digital assets and international platforms — there is a clear need to relook at the LRS framework. Additionally, with remittances now linked to PAN, there may be a broader policy push to align LRS usage with income-tax compliance, ensuring that outward remittances reflect an individual's financial profile and tax status. A review can also help address concerns around sensitive sectors and potential misuse,' said Moin Ladha, Partner at Khaitan & Co. According to recent data, India's outward remittances under the Liberalised Remittance Scheme moderated by 6.85 per cent year-on-year (YoY) to $29.56 billion in FY25, after rising to an all-time high of $31.73 billion in FY24. In its annual report, the RBI said it has eased procedures and expanded the scope of the LRS in FY25, with the aim of improving convenience and accessibility for resident individuals. From 3 July 2024, authorised dealers (ADs) were allowed to facilitate remittances based on online or physical submission of Form A2, subject to Section 10(5) of FEMA 1999, irrespective of transaction value. Additionally, resident individuals were permitted to send funds under LRS to International Financial Services Centres (IFSCs) for any permissible current or capital account transaction, effective from 10 July 2024, the RBI said. Individuals were also allowed to use funds held in their IFSC-based foreign currency accounts to make transactions in other foreign jurisdictions. Previously, LRS remittances to IFSCs were allowed only for investment in securities. This was expanded on 22 June 2023 to include payments of education fees to foreign universities operating in IFSCs. 'Amid the growing educational inflation abroad and broader inflation, there is a need to relook at the LRS limits. The review is part of periodic assessment and the RBI keeping in sync with the changing realities,' another expert said.
Economic Times
05-05-2025
- Business
- Economic Times
Small foreign stakes in listed cos face banks' regulatory barriers
Tired of too many ads? Remove Ads Tired of too many ads? Remove Ads Popular in Markets Mumbai: Foreign investors planning to test the waters by buying small stakes through off-market deals in listed Indian companies are hitting a wall with banks throwing the rule book at least half a dozen large private and MNC banks, following a rigid interpretation of the law, have told such offshore investors that they can hold less than 10% in listed companies only after registering themselves as foreign portfolio investors (FPI) with the Securities & Exchange Board of India (Sebi).Banks taking such a stance have blocked a few inbound investments even though the proposed share purchases were not on the stock exchange, but planned as secondary off-market trades and preferential stems from the understanding that foreign holdings above 10% would be categorised as 'FDI' while equity interests of less than 10% would be treated as 'foreign portfolio investment'."This issue has been coming up in multiple deals recently at the time of investment. FDI and FPI are two separate investment routes. Quantum of investment, in my view, should not force an investor to change the category of investment as that would not be supported by the current structure and commercial objective," said Moin Ladha, partner at the law firm Khaitan & to commit large stakes, many (non-FPI) investors prefer single-digit holdings in listed this context, several banks hold the view that investments classified as foreign portfolio investments could be only made by Sebi recognised FPIs. Since banks are the authorised foreign exchange dealers responsible for processing the inflows, their disapproval would either stall a transaction or drive the investor to find a bank with a more realistic interpretation of the comfortable with less than 10% investments by non-FPI foreign investors believe that while such an investment should be classified as foreign portfolio investment, it's not necessary that the investor must be an FPI. So, any foreign investor-irrespective of whether it has an FPI license or not-can buy the shares. These banks think that the FDI-related paperwork, like filing of 'foreign currency gross provisional return' (FC-GPR), will not be necessary for such portfolio Foreign Exchange Management (Non-debt Instruments, or NDI)) Rules state that investment of 10% or more in a listed company would be treated as FDI. "Conversely, an investment of less than 10% by any person resident outside India is treated as foreign portfolio investment under Rule 2(t). It may be noted that this is foreign portfolio investment and is applicable for any person resident outside India. It is different from a ' Foreign Portfolio Investor ' which is registered with Sebi," said Anup P. Shah of PPS & Co, a tax and legal advisory firm."It is possible to take the view that a foreign person should be allowed to invest less than 10% in a listed company even if he is not a Sebi-registered FPI. However, this is an issue on which there is no express clarity, leading to diverse interpretations," said than 10% investment, said Ladha, can be undertaken under Schedule I of the NDI rules. "The original intent of the rules is to ease reporting and not curtail investment below 10% under Schedule I," he developments take place at a point when Sebi has broached the idea of allowing foreigners to directly buy listed stocks-the way NRIs can, albeit subject to a FDI-FPI norms are often shaped by the respective turfs of RBI (dealing with FDI) and Sebi (formulating rules on FPIs). Their inability to bridge the gaps have made the rules less flexible. For instance, an FPI must hold less than 10% in a listed company; but if it buys more shares and the holding crosses 10% to reach, say 12%, the entire 12% is considered as FDI. And, even after the FPI sells the additional shares and brings the stake below 10%, it is still considered as FDI.
Time of India
05-05-2025
- Business
- Time of India
Small foreign stakes in listed cos face banks' regulatory barriers
Mumbai: Foreign investors planning to test the waters by buying small stakes through off-market deals in listed Indian companies are hitting a wall with banks throwing the rule book at them. At least half a dozen large private and MNC banks, following a rigid interpretation of the law, have told such offshore investors that they can hold less than 10% in listed companies only after registering themselves as foreign portfolio investors (FPI) with the Securities & Exchange Board of India (Sebi). Banks taking such a stance have blocked a few inbound investments even though the proposed share purchases were not on the stock exchange, but planned as secondary off-market trades and preferential allotment. This stems from the understanding that foreign holdings above 10% would be categorised as 'FDI' while equity interests of less than 10% would be treated as 'foreign portfolio investment'. "This issue has been coming up in multiple deals recently at the time of investment. FDI and FPI are two separate investment routes. Quantum of investment, in my view, should not force an investor to change the category of investment as that would not be supported by the current structure and commercial objective," said Moin Ladha, partner at the law firm Khaitan & Co. Hesitant to commit large stakes, many (non-FPI) investors prefer single-digit holdings in listed entities. In this context, several banks hold the view that investments classified as foreign portfolio investments could be only made by Sebi recognised FPIs. Since banks are the authorised foreign exchange dealers responsible for processing the inflows, their disapproval would either stall a transaction or drive the investor to find a bank with a more realistic interpretation of the regulations. Agencies Banks comfortable with less than 10% investments by non-FPI foreign investors believe that while such an investment should be classified as foreign portfolio investment, it's not necessary that the investor must be an FPI. So, any foreign investor-irrespective of whether it has an FPI license or not-can buy the shares. These banks think that the FDI-related paperwork, like filing of 'foreign currency gross provisional return' (FC-GPR), will not be necessary for such portfolio investments. The Foreign Exchange Management (Non-debt Instruments, or NDI)) Rules state that investment of 10% or more in a listed company would be treated as FDI. "Conversely, an investment of less than 10% by any person resident outside India is treated as foreign portfolio investment under Rule 2(t). It may be noted that this is foreign portfolio investment and is applicable for any person resident outside India. It is different from a ' Foreign Portfolio Investor ' which is registered with Sebi," said Anup P. Shah of PPS & Co, a tax and legal advisory firm. "It is possible to take the view that a foreign person should be allowed to invest less than 10% in a listed company even if he is not a Sebi-registered FPI. However, this is an issue on which there is no express clarity, leading to diverse interpretations," said Shah. Less than 10% investment, said Ladha, can be undertaken under Schedule I of the NDI rules. "The original intent of the rules is to ease reporting and not curtail investment below 10% under Schedule I," he said. The developments take place at a point when Sebi has broached the idea of allowing foreigners to directly buy listed stocks-the way NRIs can, albeit subject to a cap. The FDI-FPI norms are often shaped by the respective turfs of RBI (dealing with FDI) and Sebi (formulating rules on FPIs). Their inability to bridge the gaps have made the rules less flexible. For instance, an FPI must hold less than 10% in a listed company; but if it buys more shares and the holding crosses 10% to reach, say 12%, the entire 12% is considered as FDI. And, even after the FPI sells the additional shares and brings the stake below 10%, it is still considered as FDI.
