Compliance Simplified: Designated Depository To Monitor FI Limits of Listed Companies

Foreign Investment Limit Monitoring (FILM)

Indian company to facilitate the monitoring of the foreign investment limits of that company has appointed NSDL as Designated Depository. NSDL has developed a system for monitoring the foreign investment limits in listed Indian companies. The Issuer services portal viz., https://issuer.nsdl.com/ for Listed companies to capture the information as advised by SEBI. Companies provided permissible Aggregate Limit for investment by FPIs/NRIs along with other details.

Framework Designed to Ensure Transparency And Compliance

Foreign investment in India is regulated under the Foreign Exchange Management Act, 1999 (FEMA), specifically clause (b) of sub-section 3 of section 6 and section 47. FEMA sets limits for foreign investment in listed Indian companies, covering overall FPI limit, NRI limit as well as sectoral cap. The RBI Master Direction (FED Master Direction No. 11/2017-18) dated January 04, 2018 consolidates guidelines on Foreign Investment in India under FEMA.

To assist listed Indian companies in ensuring compliance with these limits, SEBI, in collaboration with RBI, has decided to implement a new system for monitoring foreign investment limits. While the responsibility for adhering to foreign investment limits lies with the Indian company, the designated depository chosen by the issuer will also monitor foreign investment limits.

SEBI has authorized NSDL to generate a centralized FPI Registration and FPI Certificate with the commencement of Foreign Portfolio Investor (FPI) Regime in 2014.

For this, a central system viz., FPI Monitor (www.fpi.nsdl.co.in) has been developed by NSDL for registration of Foreign Portfolio Investors. Till date, more than 10,000 + FPIs have registered on the NSDL FPI portal.

Designated Depository’ Plays Crucial Role in Ensuring FI Compliance

The Designated Depository will oversee the monitoring of foreign investment limits. The designated depository is the depository chosen by the issuer company. It will facilitate the issuer in effectively overseeing foreign investment limits, including sectoral and sub-limits such as FPI and NRI, as prescribed by RBI. In this setup, the designated depository takes the lead role, while the other depository acts as a feed depository. The listed company remains responsible for adhering to regulations and this system aids the issuer in complying with foreign investment monitoring guidelines.

Procedures For Sectorial And FPI/NRI Limit Updates

The issuer will designate a Depository for monitoring foreign investment limits. The capital of the issuer provided by stock exchanges. The issuer will furnish the Designated Depository with sector details, sectoral caps, foreign investment limits, NRI investment limits and physical share details. Updates to sectorial data and FPI/NRI limits require:

Board of Directors resolution for increase/decrease.
General body resolution for increase/decrease.
Company Secretary certificate for FEMA, 1999 compliance.

Issuer Companies To Get Real-Time Compliance Alerts

The Designated Depository will facilitate the monitoring of foreign investment limits, including sub-limits for NRI and FPI. This monitoring is based on the fully diluted paid-up equity capital to ensure compliance. A red flag alert activates if foreign investment nears 3% or falls below this threshold concerning aggregate NRI/FPI limits or sectoral caps. Monitoring occurs at NRI, FPI and sectorial levels.

NRI investment limit: Monitoring assesses the percentage of NRI holdings and available investment headroom by day-end. A red flag alert triggers if the headroom is 3% or less than the aggregate NRI investment limit.
FPI investment limit: Similar monitoring on the percentage of FPI holdings and available investment headroom is done. A red flag alert activates if the headroom is 3% or less than the aggregate FPI investment limit.
Sectoral cap: Total foreign investment is computed by adding NRI and FPI investments on the stock exchange and other foreign investments from the company master. A red flag alert activates if the total foreign investment is within 3% or less of the sectoral cap. Depositories and exchanges then display available investment headroom in terms of shares for flagged companies, updating this data daily until the red flag is cleared.

What happens In Case of Breach of Foreign Investment Limits?

Upon breaching the aggregate NRI/FPI investment limits or the sectoral cap, depositories inform stock exchanges. The stock exchanges issue necessary circulars and public notifications on their websites. Further purchases are halted for:

FPIs, if the aggregate FPI limit is breached.
NRIs, if the aggregate NRI limit is breached.
All foreign investors, if the sectoral cap is breached.

Note: For breaches, foreign investors must divest excess holdings within 5 trading days after trade settlement, selling shares exclusively to domestic investors.

Below you can find insights into companies flagged for potential risks, as indicated in the Red Flag list, those in breach of prescribed limits, and details on Aggregate Permissible Foreign Investment Limits [FPI/NRI/Sector Cap] of Listed Indian Companies

Other Services: Explore NSDL’s Issuer-Centric Offerings

NSDL offers a bouquet of services to issuer companies through its network of over 260 DPs/Business Partners. Besides the monitoring of Foreign Investment Limit, NSDL offers various services such as system driven disclosures, Electronic Bidding Platform and handling of corporate actions. These services contribute to operational efficiency and transparency, ensuring adherence to regulatory requirements and fostering productive interaction with the financial market.