Government reviews position on `indirect foreign investments' in banks

The government has reviewed the policy relating to calculation of downstream investments by a banking company incorporated in India, which is owned or controlled by non-residents or a non-resident entity.

Downstream investments made by a banking company incorporated in India, which is owned and/or controlled by non-residents or a non-resident entity, under corporate debt restructuring (CDR), or other loan restructuring mechanism, or in trading books, or for acquisition of shares due to defaults in loans, will not count towards indirect foreign investment.

However, their 'strategic downstream investment' will count towards indirect foreign investment. For this purpose, 'strategic downstream investments' would mean investment by these banking companies in their subsidiaries, joint ventures and associates.

The decision will take immediate effect, the department of industrial policy and promotion under the ministry of commerce and industry said in an official note released today

Foreign investment through an investing Indian company would not be considered for calculation of indirect foreign investment in case of Indian companies, which are 'owned and controlled' by resident Indian citizens and/or Indian companies, in which case it would be foreign direct investment.

Downstream investment by an Indian company, which is owned or controlled by a non-resident entity, into another Indian company, would be in accordance with the relevant sectoral conditions on entry route, conditionalities and caps, with regard to the sectors in which the latter Indian company is operating.

In cases where the investing company is owned or controlled by 'non-resident entities', the entire investment by the investing company into that Indian company would be considered as ''indirect foreign investment,'' provided that, as an exception, the indirect foreign investment will be limited to the 100 per cent owned subsidiaries of operating-cum-investing company, the release said.