Deepa Devi
RBI amends FEMA regulations to allow 49% FDI under automatic route in Pension Sector
The policy makers are determined to attract foreign investment through Foreign Direct Investment (FDI) and continue to revisit sectoral caps and mode of investment in various sectors of the economy. The Department of Industrial Policy and Promotion (DIPP) and the Reserve Bank of India (RBI) together are working extensively towards achieving higher targets set by the Government with respect to attraction of foreign investment in the country.
In pursuance of the enactment of Insurance Regulatory and Development Act, 2013, DIPP, vide Press Note 4[1] dated 24th April 2015 inserted para 6.2.17.9 and 6.2.17.9.1 to the Consolidated FDI Policy Circular, 2014[2] (Policy, 2014) to permit FDI up to 49% (up to 26% under Automatic route and beyond 26% under Approval route) in Pension Sector subject to certain conditions.
Further, DIPP vide Press Note 2[3]dated March 23, 2016 amended Para 6.2.17.9and Para 6.2.17.9.1 of the Consolidated FDI Policy Circular of 2015[4] (Policy 2015) in order to allow the whole 49% permitted FDI under Automatic route in Pension Sector, pursuant to the amendment made to the Insurance Act, 1938.
FDI Policy Circular, 2016[5] reflects the amended provision.
In the light of the above Press Note 2, RBI issued the [6]Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Sixteenth Amendment) Regulations, 2016 (‘Amendment Regulations, 2016’) to amend the existing entry F.10 of Annex B of Schedule 1 to Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 (‘Regulations, 2000’) in order to support the amendment made vide Press Note 2. The amendment is effective from the date of its publication in Official Gazette, i.e., from 4th November, 2016.
A comparative table of the changes made vide press note no. 2 of 2016 and Amendment Regulations, 2016 is specified hereunder:
| Particulars | As prescribed under Press Note 2, 2016 issued by DIPP | As amended vide present RBI Notification |
| % of Equity or FDI Cap | Up to 49% under Automatic Route | Up to 49% under Automatic Route |
| Condition 1 | Foreign investment in the Pension Funds is allowed as per the Pension Fund Regulatory and Development Authority (PFRDA) Act, 2013. | Foreign investment in the Pension Funds is allowed as per the Pension Fund Regulatory and Development Authority (PFRDA) Act, 2013. |
| Condition 2 | Entities bringing in foreign equity investment as per Section 24[7] of the PFRDA Act shall obtain necessary registration from the Pension Fund Regulatory and Development Authority and comply with other requirements as per the PFRDA Act, 2013 and Rules and Regulations framed under it for so participating in Pension Fund Management activities in India. | Entities bringing in foreign investments as equity shares or preference shares or convertible debentures or warrants as per Section 24 of the PFRDA Act, 2013 shall obtain necessary registration from the PFRDA and comply with other requirements as per the PFRDA Act, 2013 and Rules and Regulations framed under it for so participating in Pension Fund Management activities in India. |
| Condition 3 | Foreign equity investment involving control or ownership by the foreign investor or, transfer of control or ownership of an existing pension fund from resident Indian citizens and/ or Indian companies owned and controlled by resident Indian citizens to such foreign investing entities by way of transfer of shares and or fresh issue of shares to Non-Resident entities through acquisition, amalgamation, merger etc., was permitted on approval from FIPB in consultation with the Department of Financial Services, PFRDA and other entities concerned.
Further, the compliance obligation of these conditions will be on investee Indian pension fund company. Meaning of ownership and control will be as per FDI Policy |
An Indian pension fund shall ensure that its ownership and control remains at all times in the hands of resident Indian entities as determined by the Government of India / PFRDA as per the rules/regulation issued by them from time to time.
Meaning of ownership and control will be as defined in Regulation 14 of Principal Regulations.
|
Conclusion
While it took months to align FEMA regulations with the amendment, the change is surely a welcome move.
[1]https://taxguru.in/rbi/govt-49-foreign-investment-fdi-pension-sector.html
[2]https://taxguru.in/rbi/consolidated-fdi-policy-fdi-guidelines-dated-1742014-fema.html
[3]https://taxguru.in/rbi/govt-permits-upto-49-fdi-pension-sector-automatic-route.html
[4]https://taxguru.in/rbi/consolidated-fdi-policy-effective-12-2015.html
[5]https://taxguru.in/rbi/consolidated-fdi-policy-circular-2016-wef-june-07-2016.html
[6]https://taxguru.in/rbi/foreign-exchange-management-transfer-or-issue-of-security-by-a-person-resident-outside-india-sixteenth-amendment-regulations-2016.html
[7] 24. The aggregate holding of equity shares by a foreign company either by itself or through its subsidiary companies or its nominees or by an individual or by an association of persons whether registered or not under any law of a country outside India taken in aggregate in the pension fund shall not exceed twenty-six per cent. of the paid-up capital of such fund or such percentage as may be approved for an Indian insurance company under the provisions of the Insurance Act, 1938, whichever is higher.
“Indian insurance company” means any insurer, being a company which is limited by shares, and
a) which is formed and registered under the Companies Act, 2013 as a public company or is converted into such a company within one year of the commencement of the Insurance Laws (Amendment) Act, 2015;
(b) in which the aggregate holdings of equity shares by foreign investors, including portfolio investors, do not exceed forty-nine per cent. of the paid up equity capital of such Indian insurance company, which is Indian owned and controlled, in such manner as may be prescribed.
(Author is associated with Vinod Kothari & Company and can be reached at corplaw@vinodkothari.com))
