In terms of Foreign Exchange Management (Transfer or Issue of Security by a person Resident outside India) Regulations, 2017 notified vide Notification No. FEMA 20(R)/2017-RB dated November 07, 2017 the onus of compliance with the sectoral/ statutory caps on foreign investment lies with the Indian investee company.
Currently, Reserve Bank of India receives data on investment made by Foreign Portfolio Investors (FPI) and Non-resident Indians (NRI) on stock exchanges from the custodian banks and Authorised Dealer Banks for their respective clients, based on which restrictions beyond a threshold limit is imposed on FPI/ NRI investment in listed Indian companies.
In order to facilitate the listed Indian companies to ensure compliance with the various foreign investment limits, SEBI in consultation with RBI vide its circular IMD/FPIC/CIR/P/2018/61 dated 05th April 2018 ( “Circular”) has decided to put in place a new system for monitoring the foreign investment limits.
Under the new mechanism, the depositories (NSDL and CDSL) shall put in place the necessary infrastructure and IT systems for operationalizing the monitoring mechanism. The Stock Exchanges (BSE, NSE and MSEI) shall also put in place the necessary infrastructure and IT systems for disseminating information on the available investment headroom in respect of listed Indian companies. The existing mechanism for monitoring the foreign investment limits shall be done away with once the new system is operationalized.
In terms of the circular, all listed Indian companies are required to provide the specified data/ information on foreign investment to the depositories. The requisite information may be provided before May 15, 2018. The information to be provided is as follows:
- Company Identification Number (CIN)
- Date of incorporation
- PAN number
- Applicable Sector
- Applicable Sectoral Cap
- Permissible Aggregate Limit for investment by FPIs
- Permissible Aggregate Limit for investment by NRIs
- Details of shares held by FPI, NRIs and other foreign investors, on repatriable basis, in demat as well as in physical form
- Details of indirect foreign investment which are held in both demat and physical form
- Details of demat accounts of Indian companies making indirect foreign investment in the capital of the company
- Whether the Indian company that has total foreign investment in it , is either not owned and not controlled by resident Indian Citizens or is owned or controlled by person’s resident outside India (Yes or No)
- ISIN-wise details of the downstream investment in other Indian companies
The listed Indian companies, in non-compliance with the above instructions will not be able to receive foreign investment and will be non-compliant with Foreign Exchange Management Act, 1999 (FEMA) and regulations made thereunder.
At present, as per SEBI guidelines, the custodians are reporting confirmed trades of their FPI clients to the depositories on a T+1 basis. This reporting shall continue and the data shall be the basis of calculating FPI investments/holding in Indian companies.
With respect to NRI (repatriable) trades, Authorized Dealer (AD) Banks shall report the transactions of their NRI clients to the depositories. As per RBI/2017-18/172, A.P. (DIR Series) Circular No. 27 [(1)/20(R)] dated 03rd May 2018 upon implementation of the new monitoring system, all Authorised Dealer banks would be required to provide the details of investment made by their respective NRI clients to the depositories in the format as provided by the depositories/ SEBI. In addition, the reporting to Reserve Bank in the existing system, viz., LEC (NRI) and LEC (FII), would continue.
As per circular dated 27th April 2018 IMD/FPIC/CIR/P/2018/74 the deadline for the companies to provide the necessary data to the depositories has been extended to May 15, 2018. The new system for monitoring foreign investment limits in listed Indian companies shall be made operational on May 18, 2018.