RBI relaxes FDI norms for transfer of shares

The Reserve Bank of India (RBI) with the view of liberalizing the foreign direct investment (FDI) procedures and policies with regard to transfer of shares and to do away with requirement of seeking approvals from multiple regulators, has made certain amendments by issuing a circular on November 4, 2011. 

The Reserve Bank of India (RBI) with the view of liberalizing the foreign direct investment (FDI) procedures and policies with regard to transfer of shares and to do away with requirement of seeking approvals from multiple regulators, has made certain amendments by issuing a circular on November 4, 2011.

Prior to the said circular, under the extant FDI policy, the RBI’s prior approval was required for transfer of shares by a resident to a non-resident and vice versa if the transfer did not conform to the pricing guidelines.

RBI’s approval was also necessary in cases where the transfer of shares required the prior approval of the FIPB as per the extant FDI policy or if the Indian company whose shares were being transferred was engaged in rendering any financial service or the transfer falls under the purview of the provisions of SEBI (SAST) Regulations (‘Takeover Regulations’).

Pursuant to this circular, RBI approval will not be required for transfer of shares between resident and non-resident in the abovementioned scenarios i.e. the investee company engaged in financial services, takeover deals, where pricing guidelines are not met and also where Foreign Investment Promotion Board (FIPB) approval is required. Further, RBI approval will not be required for transfer of shares between non-resident and resident if the transfer does not conform to the pricing guidelines. However, RBI has made it very clear that the above relaxation is subject to satisfaction of certain conditions such as compliance with extant FDI Policy and FEMA regulations in terms of FDI sectoral caps and conditionalities that may include minimum capitalisation among others. Moreover, the pricing must be compliant with various SEBI regulations pertaining to IPO, Book building, block deals, delisting, substantial acquisition and others.

These steps have been taken “as a measure to further liberalise and rationalise the procedures and policies governing foreign direct investment in India,” the RBI said. 

This is a welcome step by RBI to do away with multiple approvals in cross border transfer of shares. This notification will amongst others benefit companies engaged in financial service sector.

While FDI inflows have gone up by 95 percent to $17.37 billion between April and August, the government and the RBI want to maintain robust foreign exchange reserves as volatility in the stock market has led to outflows, reports ET.

RBI Circular: FDI-Transfer of Shares