Foreign Buyers of Sub-10% Stakes Face Bank Hurdles in India
Why in the news
Offshore investors buying small stakes through preferential allotments or secondary deals are being turned back by banks, which demand Sebi-registered FPI status.
Key facts
- NDI Rules: 10% or more is FDI (RBI); below 10% is FPI (Sebi).
- Rule 2(t) uses the term foreign portfolio investment for any non-resident, so banks read it differently.
- Conservative banks insist on FPI registration; liberal ones allow others to buy below 10% without FDI paperwork like FC-GPR.
| Trade type | Process |
|---|---|
| Market trade | Through NSE/BSE and a broker; cleared by depositories (NSDL/CDSL); settled via a Clearing Corporation |
| Off-market trade | Direct transfer; no exchange or Clearing Corporation; transferor gives a signed Delivery Instruction Slip to the Depository Participant |
Concerns
- Small-stake buyers avoid FPI registration because of cost and complexity.
- An FPI past 10% sees its entire holding reclassified as FDI, permanently; this mirrors a turf split between RBI and Sebi.
- Sebi’s expected proposal allowing foreigners to buy shares directly, as NRIs do, may ease the issue.
Exam angle
- 10% threshold; FDI form: FC-GPR; off-market document: DIS.