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Top 4 Changes in FDI Norms for NBFCs

Top 4 Changes in FDI Norms for NBFCs

Top 4 Changes in FDI Norms for NBFCs

Modi Government seems unsatisfied with staggering 37% increase in FDI achieved in April-June 2017 as compared to last quarter. To further boost the economy, government has incorporated some changes in the 2017-2018 budget and introduced new FDI norms.

As per the old norms, restrictions for FDI on the Non-Banking Financial Companies (NBFCs) have all been removed, understanding the importance attached to FDIs.

We have just started to realize that banks are not sufficient for meeting the loan requirements for individuals and small business communities. The Digital Marketplace Lending space is growing, at a tremendous pace.

In 2021, the World lending business will cross $290 billion. In India, alone we will have 10 Digital lenders. So, far as the startups are concerned, Eco-system Digital India and P2P lending is expected to play a significant role in financial inclusion.

There is a need for funds in the NBFC sector due to this Digital Lending platform. The traditional NBFCs are failing to compete with the banks on account of lower rate of interest.

We find that Fintech companies are now making use of Big Data, Social Algorithms and other use of technology in the lending process. They are adopting the alternative lending business model.

These marketplace lenders make use of tools like anti-fraud for user-friendly online and mobile interfaces as well as innovative credit models, thereby offering an entirely new value proposition, for the borrowers and the investors. Following are some of the changes in FDI norms for NBFCs in 2017:

Change #1: FDI in NBFC

FDI in NBFC has seen a liberal point of view as the demand for funding in this sector is huge. The venture capitalists and the foreign banks can now invest in NBFCs. This is important because the Fintech companies are growing at a rate of 30 to 40 %, thanks to the easy and secure process of lending.

Change #2: 100 % FDI in Automatic Route in NBFC

The new norm states 100 % FDI through the Automatic route for NBFC, under the Section 47 of the Foreign Exchange Management Act. Investment in the automatic route was restricted to the 18 specified NBFC activities. Furthermore, investment activities were not part of these 18 NBFC activities.

As per the new amendment, the investment is now subject to sectoral regulations and provisions for Foreign Exchange Management Regulations,2000 with all the amendments incorporated from time to time.

Change #3: Elimination of Minimum Capitalization Norms

The minimum Capitalization norms will now be eliminated as most of the regulators have now got the fixed minimum Capitalization norms in place. Moreover, the list on non-fund based activities are said to be subjected to minimum capitalization requirements.

Change #4: Regulatory Compliance and Risk Management for NBFC

There is a complex and strict regulatory environment under which marketplace lending operates. It is not easy to make NBFCs conform to compliance. Moreover, foreign funding in NBFCs must meet RBI compliance. However, RBI has now simplified the filing process with an online form through RBI portal.

Whether regulated on non-regulated, the aim of the Government is to encourage foreign investment in all sectors. The difference simply lies in the fact that the activities that are not regulated need prior Government approval.

We conclude, by saying that the new set of FDI norms is sure to bring a whole lot of foreign investments to the Indian shore.

It was rightly said by Ralph Waldo Emerson– “Every Wall is a Door”
Thus, take a step forward to open the door for the new FDI norms.

Shweta Gupta from MUDS MANAGEMENT is recognized amongst the most-respected, knowledgeable, and yes, pocket-friendly as well.

Why not give call right now at +91 9599653306 and start a conversation immediately.

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