Foreign
direct investment rules regulate foreign investment in NBFCs. The permitted
activities of such NBFCs are listed in the FDI circular – there are 18
permitted activities. Conspicuously absent there is investment activity. That
is, foreign owned NBFCs cannot carry investment activity. This does not imply
that such an entity cannot make any investments at all – investments can only
be incidental. Step down subsidiaries can be floated by NBFCs with foreign
capitalization of USD 50 million or above.
There
are minimum capitalization norms depending on the percentage of foreign holding
envisaged. Upto 51%, it is USD 0.5 million, 51% - 75% - it is USD 5 million,
and for 100% foreign owned entities, it is USD 50 million. Minimum
capitalization refers to the capital brought by foreign investors – it is not
the total paid up capital of the NBFC nor the par value of the shares.
Can NBFCs make
investments overseas?
Foreign
investments overseas may be either in form of shares of a joint venture company
or a wholly owned subsidiary (referred to as overseas direct investment or
ODI), or portfolio investments in overseas stocks. ODI by NBFCs is permitted in
financial sector entities in the foreign countries, subject to registration
with appropriate regulatory bodies of the host country. The precondition is
that the investing company must have made profits for 3 years. The limit of
investment is 400% of net worth of the investing company.
Ozg NBFC Consultant
Ozg Center, New Delhi & Mumbai
Phone # 09811415831-37-61-72-84-92-94
Website: http://nbfc.ozg.in
Email: ask@nbfcregistration.com
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