The Union Cabinet on Wednesday approved foreign investment under the automatic route in non-banking finance companies (NBFCs)/Other Financial Services.
The Cabinet meeting was chaired by Prime Minister Narendra Modi.
As per the government’s decision, the Foreign Exchange Management (Transfer or Issue of Security by the Person Resident Outside India) regulations on the NBFC will be amended to allow inflow of foreign investments under the automatic route.
However, such entitites shoud be governed by financial sector regulators like the Reserve Bank of India (RBI), the Securities and Exchang Board of India (SEBI), the Pension Fund Regulatory and Development Authority (PFRDA) and others.
“Foreign investment in “Other Financial Services”, which are not regulated by any regulators/government agency, can be made on approval route,” the government said.
The government has also eliminated minimum capitalisation norms stipulated under the Foreign Direct Investment (FDI) policy as the limit has been prescribed by financial sector regulators.
“This will induce FDI and spur economic activities. It will cover the whole of India and is not limited to any state/districts,” the government said.
The Cabinet decision came after Finance Minister Arun Jaitley in his 2016-17 Budget speech announced that the FDI will be allowed beyond the 18 specified NBFC activities in the automatic route in other activities which are regulated by the financial sector regulators.
The present regulations governing the NBFCs stipulates that the FDI would be allowed through the automatic route for only 18 specified NBFC activities after fulfilling prescribed minimum capitalisation norms.