FDI in regulated financial services


FDI in regulated financial services

Revised guidelines


On 09 September 2016, the Reserve Bank of India (RBI) allowed 100% foreign direct investment (FDI) under the automatic route in financial services activities regulated by financial sector regulators, namely:

  1. RBI
  2. Securities and Exchange Board of India (SEBI)
  3. Insurance Regulatory and Development Authority(IRDA)
  4. Pension Fund Regulatory and Development Authority (PFRDA)
  5. Any other financial sector regulator as may be notified by the Government of India

Revised framework

  • RBI notified the new norms by way of an amendment to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 (Transfer Regulations) (Amendment Act).
  • Prior to the Amendment Act, 100% FDI under the automatic route was restricted to non-banking finance companies engaged in specified 18 (eighteen) activities, such as merchant banking, underwriting, portfolio management services, investment advisory services, housing finance and stock broking. Under the new regime, 100% FDI is permitted in any financial services activity that is regulated by a Government regulator. The activities that were permitted earlier will continue to be under the automatic route if they are regulated by a regulator..

Key conditions

  • “Other financial services” activities need to be regulated by one of the financial sector
  • A financial services activity that is not regulated, or where only part of the activity is regulated or where there is doubt regarding regulatory oversight, FDI up to 100% will be allowed under the Government approval route subject to conditions, including minimum capitalization requirements as may be decided by the Government.
  • For any activity that is specifically regulated by a legislation of the Government of India, FDI limits will be restricted to those levels/limit that may be specified in that legislation, if so mentioned.
  • Downstream investments by any of the entities engaged in “other financial services” will be subject to the extant sectoral regulations and provisions of Transfer Regulations.


FDI in financial services that are not regulated by a Government regulator or partly regulated will require prior approval of the Government. Approvals for FDI are considered by the Foreign Investment Promotion Board, Department of Economic Affairs, Ministry of Finance.

Prior to the Amendment Act, a minimum investment of US$ 0.5 million (upfront) was required to be made for FDI up to 51% in an eligible non-banking finance company, US$ 5 million (upfront) for FDI of more than 51% and US$ 50 million for FDI of more than 75% (out of which US$ 7.5 million should be brought up front and the balance in 24 month). However, under the new regime there are no minimum capitalization norms for FDI unless specified by a relevant regulator.

Downstream investment or indirect foreign investment by an Indian entity with FDI in another Indian entity will have to comply with the sectoral regulations governing the relevant sector. For example, even though insurance companies are regulated by IRDA, only 49% FDI is permitted in insurance companies and entities engaged in the activities of insurance brokering, survey and loss assessment among others.