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Informist, Tuesday, Jul. 21, 2026

 

--RBI releases draft to rationalise FX mgmt rules on non-debt instruments

--RBI: Seek feedback on draft foreign investment rules by Aug 31 

 

NEW DELHI – The Reserve Bank of India Tuesday released a draft notification to amend rules on foreign investment in non-debt instruments, seeking to introduce a simplified and principle-based framework. The central bank has sought comments and feedback on the proposed rules by Aug. 31.

 

In additional to rationalising the provisions, the draft rules align with India's foreign direct investment policy, enhance the ease of doing business, and are part of a future-ready regulatory framework, the RBI said in a release. The current rules on equity investing, in place since 2019, were reviewed by a government committee in line with a proposal in the Union Budget for 2026-27 (Apr-Mar).

 

The new framework is meant to be more contemporary and user-friendly for foreign investors, in line with the government's evolving priorities, the RBI said. This overhaul comes after a set of measures that the government and the RBI have taken to attract foreign investment into India in recent months, including concessional hedging windows for foreign currency non-resident (bank) deposits and offshore fundraising.

 

The draft proposes a regulatory architecture that reduces complexity and is focused on clarity along with better policy coherence by splitting of procedural provisions under the Foreign Exchange Management Act from policy- and sector-specific requirements, the RBI said. The regulator has sought to streamline procedures, reduce the compliance burden, and increase operational flexibility through the framework, it said. The principles-based rules have investor- and investee-neutral provisions even with enough regulatory safeguards.

 

Foreigners and foreign-controlled entities can subscribe to an equity issue, purchase shares from any person, or get securities by way or a gift or pledge on a repatriation or non-repatriation basis. Persons resident outside India can also buy or transfer depository receipts. Non-resident Indians or Overseas Citizens of India can also subscribe to the National Pension System, with both annuity and accumulated savings being repatriable. The eligible investee can issue equity to foreigners, which can also be transferred to a resident on India later.

 

No person can make, transfer, or receive any foreign investment except as allowed under these rules, the draft said, though the RBI may make an exception if it is sought. The new rules will not apply to non-resident investors in a financial institution in the Gujarat International Finance Tec-City, which is considered an offshore entity for the purposes of regulation.

 

Foreign investment into equity should comply with conditions prescribed in the government's foreign direct investment policy, aligning with sectoral caps and prescribed entry routes, the RBI's draft norms said. Investment by a person resident outside India must comply with the Securities and Exchange Board of India's registration process and regulations on investment on recognised stock exchanges, unless specifically exempted by either regulator. These investments on stock exchanges from a person holding a rupee vostro account must comply with RBI norms on the account's use, according to the proposed rules.

 

"Foreign portfolio investment made on a recognised stock exchange in India which results in a person resident outside India holding ten percent or more of the equity of a company may be reclassified to FDI by complying with the applicable conditions for FDI as prescribed in Annexure-II and directions issued by the RBI and SEBI," the draft norms said.

 

Foreign investment on non-repatriation basis does not need to comply with pricing guidance, the regulator proposed. Foreign investment and transfer shall be at a price determined in line with SEBI regulations, when it comes to a company on a stock exchange or an investment vehicle. Similar regulations or a book-building price-finding method shall be applicable for foreigners investing in equity of Indian companies on overseas exchanges. In these cases, the beneficial owner of an investment by a person resident outside India cannot be an Indian resident, the RBI said in the draft norms.

 

"The onus of compliance with these Rules shall be on the foreign investor and the eligible investee entity or transferor and transferee in a foreign investment," the central bank proposed.  End

 

US$1 = INR 96.23

 

Reported by Aaryan Khanna

Edited by Rajeev Pai

 

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