Background material fdi-in_financial_services

Various Aspects under FEMA Financial Services BY CA. Sudha G. Bhushan

This Document provides an overview pertaining to regulatory

framework of Financial Services sector in India and the

Foreign Direct Investment Policy pertaining to same

12/18/2010

| By CA. Sudha G. Bhushan

Contents

� Overview of Foreign Exchange Management Act, 1999

� Foreign Direct Investment Policy

� About Financial Services

� Components of Financial Services

� FDI in Financial Services

� Indian financial Service Sector – Growth and opportunity


Overview of Foreign Exchange Management Act, 1999

The preamble of the act says that it is an Act to consolidate and amend the law relating to

foreign exchange with the objective of facilitating external trade and payments and for

promoting the orderly development and maintenance of foreign exchange market in India.

Foreign Exchange Management Act, 1999 (“FEMA”) has come in force from 1st June, 2000

by replacing Foreign Exchange Regulations Act (“FERA”). The main change that has been

brought is that FEMA is a civil law, whereas the FERA was a criminal law. FERA was popular

for its draconian provisions. The shift of FERA to FEMA was the shift of control of foreign

exchange to regulation and promotion and orderly development of Foreign exchange. FEMA

is forward looking legislation which aims to facilitate foreign trade.

FEMA aims to achieve self regulation instead of imposed restrictions. The rationale for strict

regulations under FERA 1973 after Independence was that India was left with little forex

reserves and during the oil –crisis of seventies ballooning oil import bills further drained

foreign exchange reserves. Unsatisfactory reserves made it imperative to put in place

stringent controls to conserve foreign exchange and to utilise it in the best interest of the

country.

FEMA has 49 Sections of which 9 Sections (Sections 1 to 9) are substantive and the rest are

procedural or administrative. RBI is entrusted with the administration and implementation

of FEMA. RBI has so far issued over 200 Notifications, each of which contains several

regulations for a particular class of transactions, e.g., Notification No. FEMA/21/RB-2000,

deals with acquisition and transfer of immovable property in India.

Notifications are type of self contained set of regulations, which are mostly divided into

three broad parts

(i) Short title and commencement

(ii) Definitions and

(iii) Other provisions

It is interesting to note that the same term may be defined differently for different purposes

in different Notifications. For example, the term “Person of Indian Origin (PIO)” is defined

differently in three Notifications, namely

(i) FEMA 13/2000-RB pertaining to remittance of assets,

(ii) FEMA 21/2000-RB pertaining to acquisition and transfer of immovable property in India

and


(iii) FEMA 24/2000-RB pertaining to investment in a firm or a proprietary concern in India.

The definition section of each Notification makes it clear that the words and expressions

used therein, but not defined in that particular Notification, shall have the same meanings

respectively assigned to them in the Act. Therefore, wherever a particular term is defined in

the Notification, the meaning to be assigned is unique to that Notification and mostly cannot

be applied to another.

Thus, interpretation and application of FEMA provisions and Notifications require utmost

care. FEMA is applicable to the whole of India. The expression “whole of India” would

indicate that the provisions of the Act are applicable to all transactions taking place in India.

Thus, any person who is present in India at the time of transaction has to comply with

provisions of FEMA. FEMA is applicable to all branches, offices and agencies outside India

owned or controlled by a person resident in India. Thus, FEMA has retained its extra-

territorial application, as under FERA.

The Enforcement of FEMA is done through Reserve Bank of India and Central Government.

The power has been given to Central Government [section 46] and RBI [Section 47] to lay

down detailed rules and regulations to carry out the various provisions of the Act. Where

under Section 47 the reserve bank of India can make regulations governing procedural and

administrative aspects of FEMA the central government have been given the power to make

rules governing enforcement of FEMA.The Central Government has established a Directorate

of Enforcement for the purpose of enforcement of Act [section 36]. Officers under

Directorate of enforcement are known as officers of Enforcement. These officers can

investigate the contraventions of FEMA.


Circulars

Master

circulars

By CA. Sudha G. Bhushan

Regulatory

Framework

Foreing

Exchange management

Act, 1999

Regulations -

Reserve Bank

Rules- Central

Goverment

Notifications


Foreign Direct Investment Policy

To fulfill the need of freeing the Indian industry from excessive official control and for promoting foreign investments in India in necessary sectors the much required liberalization of Indian economy was brought in by Industrial Policy of 1991. From then the Indian

economy is more facilitating to Foreign Direct investment in all form. The intent and objective of the Government is to promote foreign direct investment through a transparent, predictable, simple and clear policy framework and the which reduces

regulatory burden. Foreign Direct Investment in India is regulated under FEMA and it regulations. FDI by non-

resident in resident entities through transfer or issue of security to person resident outside India is a ‘Capital account transaction’ under FEMA, 1999. Keeping in view the current requirements, the Government from time to time comes up with new regulations and amendments/changes in the existing ones through order/allied rules, Press Notes, etc. The

Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce & Industry, Government of India makes policy pronouncements on FDI through Press Notes/ Press Releases which are notified by the Reserve Bank of India as amendment to notification

No.FEMA 20/2000-RB dated May 3, 2000. These notifications take effect from the date of issue of Press Notes/ Press Releases, unless specified otherwise therein. The procedural instructions are issued by the Reserve Bank of India vide A.P.Dir. (series) Circulars. The regulatory framework over a period of time thus consists of Acts, Regulations, Press Notes,

Press Releases, Clarifications, etc. Foreign Investment can be in two ways (i) Foreign Direct Investment (FDI) and (ii) Foreign Portfolio Investment.

“Investment’ is usually understood as financial contribution to the capital of an enterprise or purchase of shares in the enterprise. ‘Foreign investment’ is investment in an enterprise by

a Non-Resident irrespective of whether this involves new capital or reinvestment of earnings. One of the difference between FDI and Foreign Portfolio investment is the objective with which the investment is made. The main motivation of investor of Foreign Direct Investment is a strategic long term relationship with the direct investment enterprise

to ensure the significant degree of influence by the direct investor in the management of the direct investment enterprise. Direct investment allows the direct investor to gain access to the direct investment enterprise which it might otherwise be unable to do. However the

objectives of portfolio investment is different whereby investors do not generally expect to influence the management of the enterprise. FDI is defined by International Monetary Fund (IMF) and Organization for Economic

Cooperation and Development(OECD) as a category of cross border investment made by a resident in one economy (the direct investor) with the objective of establishing a ‘lasting interest’ in an enterprise (the direct investment enterprise) that is resident in an economy other than that of the direct investor. In the Indian context, ‘FDI’ means investment by non-

resident entity/person resident outside India in the capital of the Indian company under Schedule 1 of FEM(Transfer or Issue of Security by a Person Resident Outside India) Regulations 2000.


It is the policy of the Government of India to attract and promote productive FDI in activities which significantly contribute to industrialization and socio-economic development.

FDI supplements domestic capital and technology.

FDI EQUITY INFLOWS (MONTH-WISE) DURING THE FINANCIAL YEAR 2010-11:

Financial Year

2010-11 ( April-March )

Amount of FDI inflows

(In Rs. Crore)

Amount of FDI inflows

(In US$ mn)

April 2010

9,697 2,179

May 2010

10,135 2,213

June 2010 6,429 1,380

July 2010 8,359 1,785

August 2010

6,196 1,330

September 2010

9,754 2,118

Total 2010-11 (up to September

2010)

50,570 11005

# Figures are provisional, subject to reconciliation with RBI, Mumbai.

Soruce : www.dipp.nic.in For detailed statistics on FDI follow:

http://www.dipp.nic.in/fdi_statistics/indian_FDI_September2010.pdf


SECTORS ATTRACTING HIGHEST FDI EQUITY INFLOWS

Amount Rupees in crores (US$ in million)

RANKS SECTOR 2008-09

(April-

March)

2009-10

(April-

March)

2010-11

( April-

Sep)

1. SERVICES SECTOR

(financial & non-financial)

28,516

(6,138)

20,776

(4,353)

9,506

(2,067)

2. COMPUTER SOFTWARE & HARDWARE 7,329

(1,677)

4,351

(919)

2,438

(534)

3. TELECOMMUNICATIONS

(radio paging, cellular mobile, basic

telephone services)

11,727

(2,558)

12,338

(2,554)

4,803

(1,057)

4. HOUSING & REAL ESTATE 12,621

(2,801)

13,586

(2,844)

2,957

(640)

5. CONSTRUCTION ACTIVITIES

8,792

(2,028)

13,516

(2,862)

1,523

(332)

6. POWER 4,382

(985)

6,908

(1,437)

3,357

(729)

7. AUTOMOBILE INDUSTRY 5,212

(1,152)

5,754

(1,208)

825

(180)

Source: www.dipp.nic.in For detailed statistics on FDI follow:

http://www.dipp.nic.in/fdi_statistics/indian_FDI_September2010.pdf


Financial Services Sector

Financial Services are defined as a bundle of intangible utilities aimed at satisfying the

needs of users. Financial Services bridges the gap between savers and those who need

funds. A financial service perform

1. Identification of resources for efficient allocation

2. Providing constant evaluation of allotted of resources

3. Providing liquidity to investors

Financial System of any country consists of financial markets, financial intermediation and

financial instruments or financial products.

There are multiple regulators for various financial services in India. For eg; Reserve Bank of

India, IRDA

Financial services in India have prevailed since time immemorial. Kautilya’s Arthashatra can

said to be the first organized literature on financial service where he has amply described

the rules and regulations of money and mint management. The old instruments, like hundi

resemble the bill of exchange or promissory note or bearer cheque of contemporary

financial markets.

Financial services can be categorized into two groups, namely

1. Fund based activities and

2. Non fund based activities

Fund based activities are those where there is involvement of funds like underwriting,

portfolio management, venture capital, private equity, structural finance etc. Non funds

based financial services are those where intellectual property is used and advices are

offered. A fee or commission is charged for rendering services. The service sector in India

has been witnessing a boom in recent times. In addition to the strong growth in IT/ITES,

the Indian financial services sector is considered to be stable and progressive, and has been

a major beneficiary of India’s growth story.

The growing attractiveness of the financial services has triggered the entry of global majors.

Aggressive plans of incumbents coupled with the entry of new players are expected to

further drive the growth of sector. Liberalization, privatization and Globalization have further

strengthened the financial services in India.


Financial

Services

Asset

reconstruction

companies

Banking -

Private Sector

Banking -

Public Sector

InsuranceCommodity

Exchanges

Credit

Information

Companies

Non Banking

Finance

Companies


FDI Policy in Financial Services

(A) Asset Reconstruction Companies

‘Asset Reconstruction Company’ (ARC) means a company registered with the Reserve Bank of India under Section 3 of the Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002 (SARFAESI Act).

SARFAESI Act was famed with the purpose to regulate securitization and reconstruction of financial assets and enforcement of security interest and for matters connected therewith or incidental thereto.

As defined in the Act "asset reconstruction" means acquisition by any securitisation company or reconstruction company of any right or interest of any bank or financial institution in any financial assistance for the purpose of realisation of such financial

assistance; Presently 49% of FDI is allowed in ARC under Government Route subject to following conditions as mentioned below:

(i) Persons resident outside India, other than Foreign Institutional Investors (FIIs), can invest in the capital of Asset Reconstruction Companies (ARCs) registered with

Reserve Bank only under the Government Route. Such investments have to be strictly in the nature of FDI. Investments by FIIs are not permitted in the equity capital of ARCs.

(ii) However, FIIs registered with SEBI can invest in the Security Receipts (SRs) issued by ARCs registered with Reserve Bank. FIIs can invest upto 49 per cent of each tranche of scheme of SRs, subject to the condition that investment by a single FII in each tranche of SRs shall not exceed 10 per cent of the issue.

(iii)Any individual investment of more than 10% would be subject to provisions of section 3(3) (f) of Securitization and Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002. Key Players in Market: - Arcil etc

% of FDI CAP/Equity: - 49% of paid

up capital

Route: - Government


(B) Banking –Private sector

The Banking sector is most predominant sector in any financial system.banking sector is allowed upto 74% i

conditions: (1) The limit of 74% limit will include (PIS) by FIIs, NRIs and shares acquired prior to September 16, 2003

and continue to include IPOs, Private placements,existing shareholders.

(2) The aggregate foreign investment in a private bank from all sources willto a maximum of 74 per cent of the paid up capital of the Bank.per cent of the paid up capital will have to be held byto a wholly-owned subsidiary of a foreign bank.

(3) The stipulations as above will be applicable to all investments in existingbanks also.

Foreing Banks in India

By CA. Sudha G. Bhushan

Private sector

The Banking sector is most predominant sector in any financial system.ing sector is allowed upto 74% including investment by FIIs. Following are the further

74% limit will include investment under the Portfolio Investment(PIS) by FIIs, NRIs and shares acquired prior to September 16, 2003 by erstwhile OCBs,

and continue to include IPOs, Private placements, GDR/ADRs and acquisition of shares from

e aggregate foreign investment in a private bank from all sources willto a maximum of 74 per cent of the paid up capital of the Bank. At all times, at least 26 per cent of the paid up capital will have to be held by residents, except in rega

owned subsidiary of a foreign bank.

(3) The stipulations as above will be applicable to all investments in existing

Foreing Banks in India

a subsidiary

-

Investment

74%

A wholly-

owned

subsidiary

Branches

The Banking sector is most predominant sector in any financial system. FDI in private ncluding investment by FIIs. Following are the further

investment under the Portfolio Investment Scheme by erstwhile OCBs,

GDR/ADRs and acquisition of shares from

e aggregate foreign investment in a private bank from all sources will be allowed up At all times, at least 26

residents, except in regard

(3) The stipulations as above will be applicable to all investments in existing private sector


(4) The permissible limits under portfolio investment schemes through stock exchanges for FIIs and NRIs will be as follows:

In case of FIIs In the case of FIIs, individual FII holding is restricted to 10 per cent of the total paid-up

capital, aggregate limit for all FIIs cannot exceed 24 per cent of the total paid-up capital, which can be raised to 49 per cent of the total paid -up capital by the bank concerned through a resolution by its Board of Directors followed by a special resolution to that effect by its General Body.FII investment limit is 49 per cent of the total paid-up capital.

In the case of NRIs

Individual holding is restricted to 5 per cent of the total paid-up capital both on repatriation and non repatriation basis and aggregate limit cannot exceed 10 per cent of the total paid-up capital both on repatriation and non-repatriation basis. However, NRI holding can be allowed up to 24 per cent of the total paid-up capital both on repatriation and non-

repatriation basis provided the banking company passes a special resolution to that effect in the General Body.

Private Bank with JV with Insurance sector Applications for foreign direct investment (FDI route) in private banks having joint venture/subsidiary in insurance sector may be addressed to the Reserve Bank of India (RBI)

for consideration in consultation with the Insurance Regulatory and Development Authority (IRDA) in order to ensure that the 26 per cent limit of foreign shareholding applicable for the insurance sector is not being breached.

Other conditions:

a) Transfer of shares under FDI from residents to non-residents will continue to require

approval of RBI and Government as applicable.

b) The policies and procedures prescribed from time to time by RBI and other institutions such as SEBI, Department of Company Affairs and IRDA on these matters will apply as

applicable.

c) RBI guidelines relating to acquisition by purchase or otherwise of shares of a private bank,

if such acquisition results in any person owning or controlling 5 per cent or more of the paid up capital of the private bank will apply to non-resident investors as well.


Setting up of a subsidiary by foreign banks

(a) Foreign banks will be permitted to either have branches or subsidiaries but not both. (b) Foreign banks regulated by banking supervisory authority in the home country

and meeting Reserve Bank’s licensing criteria will be allowed to hold 100 per cent paid up capital to enable them to set up a wholly-owned subsidiary in India. (c) A foreign bank may operate in India through only one of the three channels viz.,

(i) branches (ii) a wholly-owned subsidiary and (iii) a subsidiary with aggregate foreign investment up to a maximum of 74

per cent in a private bank. (d) A foreign bank will be permitted to establish a wholly-owned subsidiary either through conversion of existing branches into a subsidiary or through a fresh banking

license. A foreign bank will be permitted to establish a subsidiary through acquisition of shares of an existing private sector bank provided at least 26 per cent of the paid capital of the private sector bank is held by residents at all times.

(e) A subsidiary of a foreign bank will be subject to the licensing requirements and conditions broadly consistent with those for new private sector banks.

(f)Guidelines for setting up a wholly-owned subsidiary of a foreign bank to be issued separately by RBI. (g) All applications by a foreign bank for setting up a subsidiary or for conversion of

their existing branches to subsidiary in India will have to be made to the RBI.

At present there is a limit of ten per cent on voting rights in respect of banking companies,

and this should be noted by potential investor.

Key Foreign Banks in India: - ABN AMRO, Bank of America, HSBC, Deutsche Bank, Citibank

India, Barclays Bank etc


(C) Banking- Public Sector

The FDI can be made subject to Banking Companies (Acquisition & Transfer of

Undertakings) Acts 1970/80. This ceiling (20%) is also applicable to the State Bank of India and its associate Banks.

FDI limit is 20% (FDI and Portfolio Investment) through Government route.

(D) Financial Infrastructure in the Securities Market

Foreign investment is permitted in infrastructure companies in Securities Markets in

(a) Stock exchanges (b) Depositories and

(c) Clearing corporations The investment has to be done in compliance with SEBI Regulations and subject to the

following conditions: (i) There is a composite ceiling of 49 per cent for Foreign Investment, with a FDI limit of 26 per cent and an FII limit of 23 per cent of the paid-up capital;

(ii) FDI will be allowed with specific prior approval of FIPB; and (iii) FII can invest only through purchases in the secondary market.

(E) Commodity Exchanges

A commodity exchange is a place where various commodities and derivatives are bought

and sold. Commodities exchanges usually trade on commodity futures. Futures trading in commodities are regulated under the Forward Contracts (Regulation) Act, 1952. Commodity Exchanges, like Stock Exchanges, are infrastructure companies in the commodity futures

market. With a view to infuse globally acceptable best practices, modern management skills and latest technology, it was decided to allow foreign investment in Commodity Exchanges.

The FDI allowed in the sector is 49% including the investment from FIIs. The other conditions of investment are as follows:

1. Investment by Registered FII under Portfolio Investment Scheme (PIS) will be

limited to 23% 2. Investment under FDI Scheme shall be limited to 26% 3. The investment can be made though Government Route only

4. FII purchases shall be restricted to secondary market only and 5. No non-resident investor/ entity, including persons acting in concert, will hold more

than 5% of the equity in these companies.

Key players: National Commodity & Derivatives Exchange Limited (NCDEX), Multi commodity exchange of India Ltd


(F) Credit Information Companies (CIC)

Credit information company means a company

formed and registered under the Companies Act, 1956 (1 of 1956) and which has been granted a certificate of registration under sub-section (2) of Section 5 of Credit Information Companies

(Regulation) Act, 2005. “Credit information” means any information relating to—

(i) the amounts and the nature of loans or advances, amounts outstanding under credit cards and other credit facilities granted or to be granted, by a credit institution to any borrower; (ii) the nature of security taken or proposed to be taken by a credit institution from

any borrower for credit facilities granted or proposed to be granted to him; (iii) the guarantee furnished or any other non-fund based facility granted or proposed to be granted by a credit institution for any of its borrowers; (iv) the creditworthiness of any borrower of a credit institution;

(v) any other matter which the Reserve Bank may, consider necessary for inclusion in the credit information to be collected and maintained by credit information companies, and, specify, by notification, in this behalf;

Foreign Investment in allowed till 49% under approval route. Following are further conditions:

1. Foreign investment is permitted under the Government route, subject to regulatory clearance from RBI.

2. Investment by a registered FII under the Portfolio Investment Scheme would be

permitted up to 24% only in the CICs listed at the Stock Exchanges, within the overall limit of 49% for foreign investment. Such FII investment would be permitted subject to the conditions that:

(a) No single entity should directly or indirectly hold more than 10% equity.

(b) Any acquisition in excess of 1% will have to be reported to RBI as a mandatory requirement; and

(c) FIIs investing in CICs shall not seek a representation on the Board of Directors based upon their shareholding.

Players:-

(a) Credit Information Bureau of India Ltd (CIBIL)

(b) Equifax Credit Information Services [backed by Crisil and Tata Capital] (c) Experian Credit Information Company of India [US based] (d) Highmark Credit Information Services

FDI Cap: - 49% (FDI & FII)

Route: Government


(G) Insurance

The Insurance sector in India is regulated by INSURANCE REGULATORY AND DEVELOPMENT

AUTHORITY ACT, 1999. The objective of act is to provide for the establishment of an

Authority to protect the interests of holders of insurance policies, to regulate, promote and

ensure orderly growth of the insurance industry and for matters connected therewith or

incidental thereto and further to amended the Insurance Act, 1938, the Life Insurance

Corporation Act, 1956 and the General Insurance Business(Nationalisation) Act, 1972.There

have been lot of changes in the sector since it has opened for private participation in 2000

following the recommendations of the Malhotra Committee report. Presently FDI upto 26%

is allowed under automatic route. Other conditions are as follow:

(1) FDI in the Insurance sector, as prescribed in the Insurance Act, 1999, is allowed under

the automatic route.

(2) This will be subject to the condition that Companies bringing in FDI shall obtain

necessary license from the Insurance Regulatory & Development Authority for undertaking

insurance activities.

List of Private Companies in Life Insurance

Name of the Private Life

Insurance Company

% of

Foreign Equity

Name of the Foreign

partner

Allianz Bajaj Life Insurance Co. Ltd.

26 Allianz

Birla Sun Life Insurance Co. Ltd.

26 Sunlife

HDFC Standard Life Insurance Co. Ltd.

18.60 Standard Life

ICICI Prudential Life Insurance Co. Ltd.

26 Prudential

ING Vysya Life Insurance Co. Ltd

26 ING

Max New York Life Insurance Co. Ltd.

26 New York Life

MetLife India Insurance Co. Ltd.

25.99 Metlife

Om Kotak Mahindra Life Insurance Co. Ltd.

26 Old Mutual

SBI Life Insurance Co. Ltd.

26 Cardiff


List of Private Companies in General Insurance

Name of the Private

General Insurance Company

% of

Foreign Equity

Name of the

Foreign partner

Royal Sundaram Alliance Insurance Co. Ltd

26 Royal Sun Alliance

ICICI Lombard General Insurance Co. Ltd

26 Lombard

IFFCO-Tokio General Insurance Co. Ltd

26 Tokio Marine

Tata-AIG General Insurance Co. Ltd

26 AIG


(H) Non-Banking Finance Companies (NBFC)

Foreign investment in NBFC is allowed under the automatic route in the following activities:

1. Merchant Banking 2. Under Writing 3. Portfolio Management Services 4. Investment Advisory Services

5. Financial Consultancy 6. Stock Broking 7. Asset Management

8. Venture Capital 9. Custodian Services 10. Factoring

11. Leasing & Finance

12. Housing Finance 13. Forex Broking

14. Credit Card Business 15. Money Changing Business 16. Micro Credit 17. Rural Credit

Minimum capitalization norms for Fund based Activities

FDI Limit Minimum capitalization requirement

Capital Infusion

Foreign capital upto 51% US $0.5 million to be brought upfront

Foreign capital more than

51% and upto 75%

US $ 5 million to be brought upfront

Foreign capital more than 75%

US $ 50 million US$ 7.5 million to be brought upfront and the

balance in 24 months.

100% foreign owned NBFCs with a minimum capitalisation of US$ 50 million can set up step down subsidiaries for specific NBFC activities, without any restriction on the number of operating subsidiaries and without bringing in additional capital.

Joint Venture operating NBFCs that have 75% or less than 75% foreign investment can also set up subsidiaries for undertaking other NBFC activities, subject to the subsidiaries also complying with the applicable minimum capitalisation norm mentioned above.

Minimum capitalization norms for Non Fund based Activities

FDI Limit Minimum capitalization requirement

Capital Infusion

For all permitted non-

fund based NBFCs irrespective of the level of foreign investment

US $0.5 million upfront


NBFC with Non- Fund based activities would not be permissible for such a company to set up any subsidiary for any other activity, nor it can participate in any equity of

an NBFC holding/operating company. (vii) This will be subject to compliance with the guidelines of RBI.

(2) Venture Capital Fund (VCF)

A Foreign Venture Capital Investor (FVCI) may contribute up to 100% of the capital of an Indian Venture Capital Undertaking and may also set up a domestic asset management

company to manage the fund. All such investments can be made under automatic route in terms of Schedule 6 to Notification No. FEMA 20. A SEBI registered FVCI can also invest in domestic venture capital fund registered under the

SEBI (Venture Capital Fund) Regulations, 1996. Such investments would also be subject to RBI regulations and FDI policy. However, in case the entity undertaking venture capital fund activity is a Trust registered under the Indian Trust Act, 1882, FDI would be permitted

under the Government route. FVCIs are also allowed to invest in other companies subject to FDI Regulations.

Non-Fund Based

activities

Investment

advisory Services

Financial

Consultancy

Forex

Broking

Money

Changing Business

Credit rating

Agencies


Indian financial Service Sector – Growth and opportunity

India is the largest democracy and 4th largest economy in the world. With its consistent

growth performance and abundant high skilled man power, India provides enormous

opportunities for investment, both domestic and foreign. Since the beginning of reforms in

1991, major reform initiative has been taken in the field of investment, trade, financial

sector, exchange control simplification of procedure. India provides liberal, attractive and

investor friendly investor.

The Financial Services sector in India has emerged as a mature and sophisticated system.

System which is inherently strong, functionally diverse and displays efficiency and flexibility.

This is a sector which is further expected to witness increasing consolidation, sophistication

and maturity in future. As compared to other developed markets, the Indian financial

services sector is largely under penetrated with a huge potential for growth keeping in

consideration government thrust on liberalization on one side and rising income, increasing

awareness of financial products, strong equity market growth on the other.

Indian Financial Services sector provides very promising investment for global investors.

Backed by favorable regulatory reforms and institutional framework, robust earning of the

corporate sector and a booming capital market, favorable demographics with a growing

consumer and investor class, increased saving in the economy channelised into the creation

of productive assets. In Financial year 09 the contribution of financial services sector to

India's GDP was 15% which is the second-largest component after trade, hotels, transport

and communication all combined together[as per the Banking & Finance Journal, released

by an FICCI in August 2010].

The robust financial services sector and vibrant Indian Economy have given birth

to plethora of emerging opportunities which are expected to gain prominence in

the long term based on regulatory and market developments.


DISCLAIMER

The analysis/views in this booklet do not purport to be and should not be treated as legal opinion. * * * *

In case of clarification please

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Background material fdi-in_financial_services