NEW DELHI: Holding back clearance under the Foreign Exchange Management Act to the controversial FDI rules, the RBI has raised concerns over the new guidelines resulting in far-reaching changes in the ownership pattern of private banks.
As per the new guidelines, for the purpose of calculation of indirect foreign investment in an Indian entity, a sum total of FDI, stake from non-resident Indians, American and Global Depository Receipts, Foreign Currency Convertible Bonds and Convertible Preference Shares will be taken into account.
With these changes, several private sector banks may find themselves transforming their status from being 'resident entities' to the non-resident entities.
The RBI, as also the Finance Ministry, has raised issues concerning these far-reaching changes which will throw several banks into a different regime of governance in terms of policy clearances, an official said.
As these concerns are yet to be addressed, the RBI has not notified the FDI guidelines amended in February. "The RBI has yet to notify the new guidelines... but we are hopeful they will notify" an official in the Department of Industrial Policy and Promotion (DIPP) said.
The North Block was concerned on the new FDI rules prompting several domestic firms to rework their ownership structure for attracting FDI in areas like retail through backdoor.
DIPP, the nodal point for FDI guidelines, is examining the issues raised by the Finance Ministry.
According to the new guidelines, if an Indian company with foreign equity of less than 50 per cent invests in an another firm, it would not be considered as FDI.
While, the DIPP in a further clarification stated that the sectoral cap would apply even to downstream investments, several domestic firms seem to be ignoring this advice.
Source:The Economic Times