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MoF permits foreign individuals to buy/ sell listed equity

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– Vinita Nair and Saloni Khant | corplaw@vinodkothari.com

With the backdrop of the outflow of billions of foreign funds and the RBI’s multipronged approach to draw foreign funds (Read our article: RBI attempts to woo fleeing foreign investors), RBI notified the FEM (Non-debt Instruments) (Third Amendment) Rules, 2026 effective from June 12, 2026. All foreign individuals who are persons resident outside India PROIs are now permitted to purchase and sell equity instruments[1] of a listed Indian company subject to an individual limit of 10% and aggregate limit of 24%. Corresponding amendments made in FEM (Mode of Payment and Reporting of Non-Debt Instruments) (Amendment) Regulations, 2026 effective from June 13, 2026, which provides the manner of mode of payment and remittance of sale proceeds etc.

Eligibility and permissible limits for investing in equity instruments of listed companies

  • Who can invest?
    • All individual PROI. Earlier it was limited to NRI and OCIs.
  • What are the revised investment limits?
Investment LimitsErstwhile limits (only for NRI and OCI) as other PROI not permitted to investRevised limits for all individual PROI (including NRI and OCI)
Individually5%10%
Aggregate10% (Could be increased to 24% by passing a special resolution)24% (No need to pass a special resolution for increasing the limits )
  • For private sector banks, the limits for NRIs are stricter and remain the same. This may be a gap or a deliberate move to remain aligned with the limit of investments beyond 5% requiring the approval of the RBI under the RBI (Commercial Banks – Acquisition and Holding of Shares or Voting Rights) Directions, 2025. The limits are on both repatriation and non-repatriation basis. For other sectors, investment on non-repatriation basis is permitted without any limits and treated akin to domestic investment.
    • Individual limit –  5 percent of the total paid up capital
    • Aggregate limit –  10 percent of the total paid up capital both
    • NRI holdings shall be allowed up to 24 percent of the total paid up capital both on repatriation and non-repatriation basis subject to passing of a special resolution.     
  • Limit applicable to individuals registered as Cat II FPIs
    • The individual limit stated above is a combined limit for investment made under different schedules.
  • Consequence of breach of individual limit of 10%:
    • Divestment required within 5 trading days of settlement of trade crossing threshold. In case of non divestment, investment is considered to be FDI.
    • Investor to intimate investee company and depositories through AD Cat-1 Bank within 7 trading days of such settlement date.
    • Sale beyond the prescribed period will be treated as contravention of NDI Rules.
  • When is government approval required?
    • Acquisition of control of an Indian investee entity by a citizen/ entity of a country sharing land border with India (LBC investor).
      • Control means the right to appoint the majority of the directors / control the management or policy decisions.
    • Acquisition of ownership of an Indian investee entity by an LBC investor.
      • Ownership means beneficial holding of more than 50% of the equity instrument of such company.
    • Acquisition of beneficial ownership by a citizen of an LBC.

Transfer of Investments in Listed Equity/ Units

  • Who can transfer to whom?
    • All individual PROIs can transfer by sale/ gift to any PROI or may sell on stock exchange.
  •  When is government approval required?
    • In case of sale or gift to another PROI, prior Government approval is required to be obtained for any transfer in case the company is engaged in a sector which requires Government approval.
    • Same 3 scenarios as above, involving LBC investor.

Mode of payment for investment

  • Consideration may be paid by inward remittance from abroad through banking channels or out of funds held in any repatriable deposit account maintained in accordance with the FEMA (Deposit) Regulations,2016 – for e.g. NRE, FCNR (B) or SNRR a/c.
  • A repatriable rupee account maintained in accordance with the FEMA (Deposit) Regulations,2016, required to be designated by an individual PROI to be used exclusively for investments permitted under Schedule III.

Remittance of sale proceeds

  • The sale proceeds (net of taxes) of equity instruments may be remitted outside India or may be credited to the designated rupee account of the person concerned.

Reporting requirements

  • To be done by AD Category-1 Bank to RBI in Form LEC (Individual Foreign Investor – IFI)  for purchase/ sale of listed equity instruments by individual PROIs including NRIs, OCIs. The designated link office of the AD bank shall furnish to RBI, a report on a daily basis, for their entire bank.

[1] Equity instruments comprises equity shares, convertible debentures, preference shares and share warrants issued by an Indian company [Rule 2(k) of FEM (NDI) Rules]

Refer to our other resources:

  1. RBI attempts to woo fleeing foreign investors
  2. Resource Centre on FEMA
  3. Resource Centre on FDI
  4. SOP for FDI approval rationalised for Border- Country Investment
  5. Open but Guarded Gates: Relaxations for Border-Country Investments

RBI attempts to woo fleeing foreign investors

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– Vinita Nair and Saloni Khant | corplaw@vinodkothari.com

– Updated as on June 18, 2026.

In light of the outflow of $13.7 billion by foreign institutional investors in less than 2 months and the consequent fall in rupee, the RBI governor has issued a press release dated June 5, 2026 introducing various measures to pull in foreign capital such as slashing tax on investment in G-secs, removing restrictions thereon, enabling foreign investment in G-secs with longer tenure, raising investment limits for NRI, OCIs and PROIs in listed equity, concessional forex swap for ECB by PSUs and subsidising hedging cost for FCNR (B) deposits.

Government Securities

  • FPIs, OCIs, and NRIs permitted to invest in 15, 30 and 40 year G-secs under FAR
  • Ease of investment in G-Secs for FPIs under the General Route
    • FPIs can now invest under the general route in government securities without these restrictions w.r.t. Short-term investments limits, Security-wise limit and Concentration limits:
      • Short-term investments limit: Investment in G-secs (maturity up to 1 year) were capped at 30% of the FPI’s total investment in each category.
      • Security-wise limit: Total of investments by FPI and those made through the Special Rupee Vostro Account Route in CG securities were capped at 30% of the security’s outstanding stock.
      • Concentration limit: Investment in G-secs by an FPI (with related FPIs) was capped at 15% and 10% of the prevailing investment limit of long-term and other FPIs respectively.
  • Merging of ‘general’ and ‘long-term’ investment limits by FPI in G-secs

The limits of investment by FPIs in G-Secs, previously bifurcated in ‘general’ and ‘long-term’ investments have now been merged for better flexibility. The erstwhile limits are provided in RBI Circular dated April 6, 2026, now clubbed as:

  • No capital gains tax for foreign investments in G-secs

An ordinance dated June 5, 2026 exempts interest earned as well as capital gains on transfer, sale or exchange of G-secs held by Foreign Institutional Investor or a Bank for International Settlements w.e.f. April 1, 2026.         

These measures are expected to increase returns for FPIs from Indian G-Secs by 15-20%[1].

Listed Equity Investments

ECBs by PSU and OFCBs

  • Government provides concessional forex swap for ECB by PSUs and OFCBs
    • The inherent currency risk of ECBs is hedged using forex swaps. The cost of forex swaps often wipes out the advantage of foreign borrowings. This relief expects an increase in ECBs from the usual $10–12 billion to $15 billion.[2]
    • The framework was notified vide RBI circular dated June 8, 2026.
    • Applicability of swap facility:
      • For ECBs with minimum maturity of 3 years;
      • For undrawn portion of existing ECBs;
      • Not available for ECBs with embedded options or raised for refinancing / repayment of existing ECBs;
      • OFCBs[3] raised by AD Cat-I Banks with minimum maturity of 3 years.
    • Features of swap facility:
      • Facility for ECBs drawdown/ OFCB flows received from June 8 to December 31, 2026 and remains open till January 15, 2027;
      • Facility available in USD only for ECB raised in any currency;
      • Maximum tenure of swap as per maturity schedule of ECB/ OCFB upto maximum 5 years;
      • Swap available at a fixed rate of 1.5 per cent per annum compounded semi-annually; 

FCNR Deposits

  • Government to bear full hedging cost of AD Cat-I Banks for fresh FCNR (B) deposits till September 30, 2026
    • Fresh 3 to 5 year Foreign Currency Non-Resident (Bank) Deposits made by NRIs and PIOs will benefit from this move. Banks may be able to raise up to $40 billion.[4]
    • The RBI Circular dated June 8, 2026 makes the framework immediately effective:
      • Facility for deposits mobilised from June 8 to September 30, 2026 and remains open till October 16, 2026;
      • Banks free to price deposits but overall ceiling as per the RBI’s guidelines. W.e.f. June 17, 2026 to September 30, 2026, RBI withdraws interest rate ceiling on these deposits (previously Overnight Alternative Reference Rate for the respective currency/ Swap plus 350 basis points) including those renewed on maturity. The rationale is to empower banks to pass the benefits of the swap facility to the depositors.
      • Tenor of swap in line with tenor of deposit;
      • Minimum lock-in period of 1 year for deposits, thereafter as per Bank’s policy;
      • Swaps once availed cannot be cancelled;
      • Facility available only once a week for FCNR(B) deposits mobilised in USD in previous week and pending to be covered under facility;
      • Swap facility available in US Dollars only.
  • RBI exempts[5] such FCNR (B) Deposits from CRR and SLR requirements from June 8 to September 30, 2026.
  • Additionally, RBI announced a similar withdrawal w.e.f. June 17, 2026 to September 30, 2026 for ceilings on interest rates for Rupee Deposits of Non-Residents i.e. NRE deposits with a tenor of at least 3 years including deposits renewed on maturity.         

RBI provides liberty to exclude the swap positions under the above facilities related to FCNR (B) deposits, ECBs and OFCBs from the limit of USD 100 million under RBI Circular dated March 27, 2026.

Realization of export proceeds

  • Timeline for realisation of export proceeds restored back to 9 months from 15 months

On November 13, 2025, the FEM (Export of Goods and Services) Directions were amended to increase the timeline for realisation of export proceeds including those made by specified entities such as SEZ / status holder exporter / EOUs etc. from 9 to 15 months as an EODB measure. [See the brief highlights here.] The latest amendment aims to expedite export receipts.

[1] Source: https://www.thehindubusinessline.com/money-and-banking/govt-sops-to-boost-fpi-returns-from-gsec-by-15-20/article71065897.ece

[2] Source: https://www.business-standard.com/economy/news/psu-ecb-borrowings-may-cross-15-billion-on-rbi-s-concessional-swap-window-126060700598_1.html

[3] Overseas Foreign Currency Borrowings

[4] Source: https://economictimes.indiatimes.com/industry/banking/finance/banking/banks-to-be-told-to-step-up-fcnr-b-deposits/articleshow/131573654.cms?from=mdr#:~:text=Banks%20will%20now%20encourage%20more,attract%20significant%20foreign%20currency%20inflows. 

[5] Hyperlinked to amendment to Directions for Commercial Banks. Similar amendments to CRR and SLR Directions for Regional Rural Banks, Rural Co-operative Banks, Urban Co-operative Banks and Small Finance Banks.

[6] previously Overnight Alternative Reference Rate for the respective currency/ Swap plus 350 basis points

Refer to our other resources:

  1. Resource Centre on FEMA
  2. Resource Centre on ECB
  3. SOP for FDI approval rationalised for Border- Country Investment
  4. Open but Guarded Gates: Relaxations for Border-Country Investments