ANNOUNCEMENT 16 Apr 2018
The Ministry of Finance has prescribed increased minimum capital requirements for foreign entities investing in certain unregulated financial services.
NUMBER OF INTERVENTIONS
Official Press Release - 4 April 2018
PWC News Alert - Foreign Investment in "unregulated financial services" entities - Press release
Bloomberg Quint - Government Sets Foreign Capital Requirements For Unregulated Financial Entities
Investment Policy Hub UNCTAD - The Government sets foreign capital requirements for unregulated financial services entities
On 16 April 2018, the Ministry of Finance through a Press Release prescribed the minimum capital requirements for "Other Financial Services" which are unregulated by any financial sector regulator and where FDI is allowed by prior approval from the government.
FDI in other unregulated financial services has been allowed up to a 100% through the government approval route by the FDI policy in 2016, amended in August 2016. The current press release specifies a minimum FDI capital of USD 20 million for fund based activities and USD 2 million for non-fund based activities. The services would be covered by this minimum requirement if they are not regulated by any financial services regulator, or if they are only partly regulated, or if there is doubt regarding the regulatory oversight.
The Consolidated FDI Policy of 2016 listed minimum capitalization norms for regulated and unregulated fund-based activities at USD 0.5 million for foreign capital up to 51%, USD 5 million for foreign capital more than 51% and up to 75% and USD 50 million for a foreign capital share of more than 75%. The minimum capitalization for non-fund based activities was set at USD 0.5 million irrespective of the level of foreign investment.
The Consolidated FDI Policy of 2017, however, did not prescribe any minimum capital requirements for investments in unregulated services but mentioned that they may be decided by the Government. It has not been clarified if the new requirements will be imposed only on new entities or existing entities as well.
The fund based services listed in the current press release are Merchant Banking, Under Writing, Portfolio Management Services, Stock Broking, Asset Management, Venture Capital, Custodian Services, Factoring, Leasing & Finance, Housing Finance, Credit Card Business, Micro Credit, and Rural Credit; while the non-fund based services listed are Investment advisory services, Financial Consultancy, Forex Broking, Money Changing Business, and Credit Rating Agencies.