Foreign Investment (FI) Limit Monitoring

Foreign Investment limits in listed Indian companies

Foreign Investment in India is regulated in terms of clause (b) of sub-section 3 of section 6 and section 47 of the Foreign Exchange Management Act, 1999 (FEMA) read with Foreign Exchange Management (Transfer or Issue of a Security by a Person resident Outside India) Regulations, 2017 issued vide Notification No. FEMA 20(R)/2017-RB dated November 7, 2017. FEMA prescribes the various foreign investment limits in listed Indian companies. These include the aggregate FPI limit, the aggregate NRI limit and the sectoral cap. The RBI Master Direction (FED Master Direction No. 11/2017-18) dated January 04, 2018 provides a compilation of the instructions issued on Foreign Investment in India and its related aspects under FEMA.

As per FEMA, the onus of compliance with the various foreign investment limits rests on the Indian company. In order to facilitate the listed Indian companies to ensure compliance with the various foreign investment limits, SEBI in consultation with RBI has decided to put in place a new system for monitoring the foreign investment limits.

Designated Depository

The monitoring of Foreign Investment Limit will be done by the Designated Depository. Designated depository is the depository which has been designated by issuer to facilitate the issuer to monitor the foreign investment limits. The monitoring of Foreign Investment Limit will include sectoral and sub limits (viz., FPI & NRI) in respect of foreign investment as prescribed by RBI. The designated depository will act as a lead depository and the other depository will act as a feed depository. The responsibility of the listed company to comply with the required regulations will continue and this will be an aid to facilitate the issuer to comply with foreign investment monitoring guidelines.

Information to the Designated Depository

Issuer will appoint any one Depository as its Designated Depository for the purpose of foreign investment limit monitoring. The capital of the issuer will be provided by the stock exchanges to the designated depository. Issuer will provide the following information to the Designated Depository, Applicable Sector, Applicable Sectoral Cap, Permissible Limit for foreign Investment, Permissible Aggregate Limit for NRI Investment. Details of shares held by foreign investors which are held in a physical form. Change/updation of sectorial details and FPI, NRI permissible limit will have to be supported by the following documents

Monitoring of Sectoral & Sub limits of Foreign Investment

The Designated Depository will facilitate monitoring of sectoral/overall foreign investment limit as well as sub limits applicable to NRI and FPI.The monitoring of the foreign investment limits shall be based on the paid-up equity capital of the company on a fully diluted basis to ensure that all foreign investments are in compliance with the foreign investment limits. A red flag shall be activated whenever the foreign investment within 3% or less than 3% of the aggregate NRI/FPI limits or the sectoral cap. The monitoring will be done at NRI, FPI and Sectorial limit level.

i) Aggregate NRI investment limit in the company

Monitoring would done on the percentage of NRI holdings in the company and the investment headroom available as at the end of the day with respect to the aggregate NRI investment limit . If the available headroom is 3% or less than 3% of the aggregate NRI investment limit, a red flag shall be activated for that company.

ii) Aggregate FPI investment limit of the company

Monitoring would done on the percentage of FPI holding in the company and the investment headroom available as at the end of the day with respect to the aggregate FPI investment limit .If the available headroom is 3% or less than 3% of the aggregate FPI investment limit, a red flag shall be activated for that company.

iii) Sectoral cap of the company

The total foreign investment would be calculated in the company by adding the aggregate NRI investment on the stock exchange, the aggregate FPI investment in the company and other foreign investment as provided by the company in the company master. If the total foreign investment in a company is within 3% or less than 3% of the sectoral cap, then a red flag shall be activated for that company. Thereafter, the depositories and exchanges shall display the available investment headroom, in terms of available shares, for all companies for which the red flag has been activated across FPI, NRI and Sectoral Cap, on their respective websites. The data on the available investment headroom shall be updated on a daily end-of-day basis as long as the red flag is activated.

Breach of foreign investment limits

Once the aggregate NRI/FPI investment limits or the sectoral cap for a given company have been breached, the depositories shall inform the exchanges about the breach. The exchanges shall issue the necessary circulars/public notifications on their respective websites and shall halt all further purchases by:

In the event of a breach of the sectoral cap/aggregate FPI limit/aggregate NRI limit, the foreign investors shall divest their excess holding within 5 trading days from the date of settlement of the trades, by selling shares only to domestic investors.