Financial Daily from THE HINDU group of publications
Friday, Nov 11, 2005
Financial Daily from THE HINDU group of publications Friday, Nov 11, 2005 |
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Financial Services Money & Banking - Foreign Direct Investment Government - Policy FDI boost: Transfer of financial services co shares may come under automatic route Ambarish Mukherjee
New Delhi , Nov. 10 AS part of a comprehensive move to liberalise the current foreign direct investment (FDI) regime, the Government is proposing to bring transfer of shares of financial services companies from resident owners to foreign investors under the automatic route. The new provision would apply to banking, insurance and non-banking finance companies (NBFCs). At present, permission to transfer shares held by resident shareholders to foreign investors in such companies is granted by the Foreign Investment Promotion Board (FIPB) on a case-by-case basis. However, the Government is of the view that since financial services are separately regulated and initial investment in banking, insurance and NBFCs are allowed under the automatic route, transfer of shares in these sectors too could be allowed under the automatic route. The Government is planning to bring transfer of shares in cases that attract the Securities and Exchange Board of India (SEBI) takeover code also under the automatic route. This too currently requires FIPB nod. It feels that since cases attracting the SEBI takeover code are already under SEBI's regulatory oversight, acquisition of shares by foreign investors in these cases can be allowed under the automatic route. The Government has also finalised plans to formally remove the mandatory 26 per cent disinvestments in favour of resident Indian shareholders in select sectors. As of now, 100 per cent FDI is allowed in tea plantation, B2B e-commerce and actual trading and marketing of petroleum, subject to the condition that the foreign investor must divest 26 per cent stake in the company in favour of Indian shareholders within a period of five years. The Government is of the view that such a condition essentially means that in the long term, FDI can only be 74 per cent, and since this does not send right signals to the investing community, this condition should be deleted. The Government has also decided to rationalise the existing FDI norms in seven sectors — airports, coal and lignite mining, mining of diamond and precious stones, petroleum, trading, power trading, and coffee and rubber processing. In all these sectors, the Government plans either to raise the existing FDI ceiling or to simplify procedures or both.
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