Liberalization of FDI in financial services sector

By Dipti Lavya Swain and Prateek Rastogi, Luthra & Luthra
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Implementing the change announced in India’s budget for 2016-17, the Reserve Bank of India (RBI) on 9 September liberalized the norms for foreign direct investment (FDI) in the financial services sector. The effect is a paradigm shift from prescribing an exhaustive list of 18 financial services activities to prescribing an inclusive set of permitted activities.

Dipti Lavya Swain, Partner, Luthra & Luthra
Dipti Lavya Swain
Partner
Luthra & Luthra

Previously, the FDI policy covered only 18 financial services under the automatic route. FDI in other unspecified financial activities was considered under the approval route. Absence of any explanation on the scope of the 18 specified activities often resulted in confusion over what activities were permitted to receive FDI under automatic route.

Limited policy evolution – such as the clarification that insurance broking, trusteeship services, estate planning services, operating leases, etc., do not fall under the scope of “financial services” – was an outcome of deliberations on applications by potential investors to the Foreign Investment Promotion Board (FIPB). Such applications demonstrated the policy ambiguity that troubled the sector, and hurt investor sentiment.

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Luthra & Luthra is a full-service law firm with a pan-India presence. Dipti Lavya Swain is a partner and Prateek Rastogi is a managing associate. The views expressed here are personal. They are intended for general information purposes and are not a substitute for legal advice.

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