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Updated: January 10, 2014 00:56 IST

RBI eases FDI norms to give foreign investors exit option

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According to the modified norms, FDI contracts can now have optionality clauses, which allow investors to exit, subject to the conditions of minimum lock-in period and without any assured returns.
The Hindu According to the modified norms, FDI contracts can now have optionality clauses, which allow investors to exit, subject to the conditions of minimum lock-in period and without any assured returns.

Contracts can now have optionality clauses

Relaxing the foreign direct investment (FDI) norms, the Reserve Bank of India, on Thursday, gave foreign investors an option to exit their investments by selling their holdings of equity or debt.

“It is expected that this relaxation will facilitate greater FDI flows into the country,” the RBI said in a statement.

According to the modified norms, FDI contracts can now have optionality clauses, which allow investors to exit, subject to the conditions of minimum lock-in period and without any assured returns.

Until now, only equity shares or compulsorily and mandatorily convertible preference shares or debentures could be issued to persons resident outside India under the FDI policy, and these instruments were not allowed to have any optionality clause, the RBI said.

FDI in India declined by about 15 per cent to $12.6 billion (Rs.74,971 crore) in April-October. According to the Department of Industrial Policy and Promotion, FDI in the same period a year earlier was $14.78 billion.

Food processing industries received $2.14 billion, services $1.36 billion, pharmaceuticals $1.08 billion, automobile $784 million and construction development $699 million.

NRI relative as joint holder

In a separate notification, the RBI said banks might include a close NRI relative as a joint holder in an individual resident’s existing or new bank account on an ‘either or survivor’ basis. Such accounts will be treated as resident bank accounts for all purposes, and all regulations applicable to a resident bank account will be applicable.

Cheques, instruments, remittances, cash, card or any other proceeds belonging to the NRI close relative will not be eligible for credit to this account, it said.

Such joint account holder facility may be extended to all types of resident accounts, including savings bank accounts, it added.

Debt switch plan may be deferred

Meanwhile, Deputy Governor H. R. Khan said the RBI might postpone its Rs.50,000 crore debt-switch programme to next fiscal. “Discussions are going on. It (debt switch not happening this year) is one possibility. There is probability that we may not do it. But who said we will not totally do it.

This is one of the possibilities that it may not happen this year but we are working on it,” he said in New Delhi. Under the debt switch plan of Rs.50,000 crore stated in the Budget 2013-14, the government announced a plan to buy short-dated debt, and, in turn, sell longer-dated bonds. This is aimed at spreading out redemptions of debt to later years.

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