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It's official: FIIs can take 40% stake in Indian companies

The Reserve Bank of India has made changes in the rules relating to foreign institutional investors' investment in the primary and secondary markets.

"It has been decided to allow Indian companies (other than banking companies), including those that have already enhanced the aggregate ceiling (for FIIs' stake) from the normal level of 24 per cent to 30 per cent, to enhance the ceiling up to 40 per cent of its issued and paid-up capital," the RBI said in a circular.

Finance Minister Yashwant Sinha had announced the raising of the limit in his Budget speech on February 29.

The enhanced limit is subject to approval by the company's board of directors and ratification by way of a special resolution passed by the general body of the company.

All other conditions applicable to FII investments would continue.

According to the RBI, FIIs, including pension funds, mutual funds, investment trusts, university funds, endowments, foundations or charitable trusts or charitable societies, are permitted to invest in all securities [equity shares/debentures/partially or fully convertible debentures, rights renunciations and warrants of Indian companies (other than banking companies) listed as well as unlisted, dated government securities, treasury bills and units of domestic mutual fund schemes in the primary and secondary markets].

FII investments will be subject to a ceiling of 24 per cent of the total paid-up equity capital of the company. The ceiling would apply to all holdings taken together, including conversions out of the fully and partly convertible debentures issued by the company.

The shareholding of a single FII or each SEBI-approved sub-account of an FII or the FII group concerned in any company would also be subject to a ceiling of ten per cent of the total issued and paid-up capital of the company.

The ceiling of 24 per cent or 40 per cent, as the case may be, applicable for FII investment will not include investments made by Non Resident Indians and Overseas Corporate Bodies under the Portfolio Investment Scheme.

It will also not include direct foreign investment by an FII as a foreign collaborator and investment by FIIs through off-shore funds, Global Depository Receipts and Euro - Convertible Bonds.

UNI

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