Minimum Capital Requirements set for FDI into Unregulated Financial Entities

The Indian Ministry of Finance vide a press release issued on 16 April 2018, has finalised the minimum capital requirements for all such activities falling under ‘Other Financial Services’, and those that are unregulated by any financial sector regulator.

As per the extant Foreign Direct Investment Policy, 2017 (FDI Policy) 100% FDI under the ‘automatic’ route is allowed for financial services activities that are regulated by a financial sector regulator inter-alia the Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI) and Insurance Regulatory and Development Authority of India (IRDA).

For financial services activities that are however not regulated by any financial sector regulator or where only part of the financial services activity is regulated or where there is doubt regarding the regulatory oversight, 100% FDI is allowed but under the ‘Government’ approval route which would further be subject to conditions including the minimum capital requirement which has now been finalised as follows:

  • For ‘fund-based’ activities – USD 20,000,000 (US Dollars twenty million); and
  • For ‘non-fund based’ activities – USD 2,000,000 (US Dollars two million).

The press release also lists the activities falling under each of the above sector as follows:

Fund Based ActivitiesMerchant Banking, Under Writing, Portfolio Management Services, Stock Broking, Asset Management, Venture Capital, Custodian Services, Factoring, Leasing & Finance, Housing Finance, Credit Card Business, Micro Credit, Rural Credit 
Non-Fund Based ActivitiesInvestment advisory services, Financial Consultancy, Forex Broking, Money Changing Business, Credit Rating Agencies 

It has also been clarified that both, ‘fund’ and ‘non-fund’ based activities would also include activities, but not be limited to the abovementioned activities, to the extent that they are, (a) unregulated by any financial sector regulator which would also include instances where the entity is not registered with the relevant sector regulator and/or the entity or activity has been exempted under the specific sector’s regulations; or (b) only part of the financial services activity is regulated; or (c) there is a doubt in relation to the regulatory oversight.

Any foreign investment now will have to prescribe to these new minimum capital requirements and obtain approval through the Government (as the case may be) prior to investing in any unregistered or exempted entities involved in financial services activities that are unregulated.

A copy of the press release may be accessed through the following link: