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Bourse foreign stake cap at 49%

October 09, 2006 11:03 IST
Overruling the suggestion of the Reserve Bank of India for allowing foreign investment of only 24 per cent in stock exchanges, the finance ministry intends to shortly finalise a cap of 49 per cent.

Finance ministry officials said the policy being worked out for stock exchanges was unlikely to disturb the present regime, where foreign institutional investors can hold up to 24 per cent, according to the Foreign Exchange Management Act norms.

"The draft proposal suggests limiting the foreign investment cap in stock exchanges to 49 per cent. The proposal has been sent to Finance Minister P Chidambaram for final approval," a senior ministry official told Business Standard.

The RBI had suggested restricting foreign investment in stock exchanges to 24 per cent, inclusive of FII investment.

According to the FEMA norms governing portfolio investment, an FII can invest up to 5 per cent in a company, while a consolidated number of three FIIs are allowed to pick up to 24 per cent. This is a uniform norm for FIIs covering sectors that are not in the negative list for FDI.

There is also a provision under the FEMA, which allows FIIs to invest beyond 24 per cent and up to the sectoral cap. This is, however, contingent on them being granted approval by the board of directors of the bourses.

Once the proposal is finalised, North Block will suggest the creation of a new category for foreign investment in stock exchanges, which will include not just the Bombay Stock Exchange but all regional stock and commodity exchanges.

The government's present foreign investment policy for the financial sector does not mention stock exchanges, depositories and clearing corporations. They do not figure in the 19 permissible investments in the financial sector.

Of the two depositories in the country, National Securities Depository Ltd already has four foreign banks as shareholders.

Monica Gupta in New Delhi
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