{"id":4431,"date":"2021-04-26T08:56:51","date_gmt":"2021-04-26T08:56:51","guid":{"rendered":"https:\/\/swaritadvisors.com\/blog\/?p=4431"},"modified":"2021-04-26T08:56:53","modified_gmt":"2021-04-26T08:56:53","slug":"foreign-direct-investment-fdi-in-nbfc","status":"publish","type":"post","link":"https:\/\/swaritadvisors.com\/blog\/foreign-direct-investment-fdi-in-nbfc\/","title":{"rendered":"Foreign Direct Investment: FDI in NBFC"},"content":{"rendered":"\n<p class=\"has-drop-cap\">A Non-Banking Financial Company or NBFC is a company registered under the Companies Act and is involved in wide-ranging businesses of financial services including financial institution. The license to manage as <a href=\"https:\/\/swaritadvisors.com\/nbfc-registration\" class=\"text-primary\"><strong>NBFC<\/strong><\/a> and adhere to its compliances is regulated by the Reserve Bank of India (RBI). These companies take on the business of advances and loans, stocks, acquisition of shares, bonds, debentures, Government or local authority issued securities or other securities that are marketable and of alike nature like insurance business, hire-purchase, leasing, or chit business. <\/p>\n\n\n\n<p>NBFC\u2019s are not exactly the Banks but involved\nin the business similar to that of banks. Continue reading this blog to know\nthe answer to how can the foreign companies invest in NBFC?<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_65 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3a8c691bc1c\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3a8c691bc1c\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/swaritadvisors.com\/blog\/foreign-direct-investment-fdi-in-nbfc\/#Importance_of_NBFC_in_Indian_Economy\" title=\"Importance of NBFC in\nIndian Economy\">Importance of NBFC in\nIndian Economy<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/swaritadvisors.com\/blog\/foreign-direct-investment-fdi-in-nbfc\/#_Financials_Activities_of_NBFCs\" title=\"&nbsp;Financials Activities of\nNBFC\u2019s \">&nbsp;Financials Activities of\nNBFC\u2019s <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/swaritadvisors.com\/blog\/foreign-direct-investment-fdi-in-nbfc\/#FDI_in_NBFC_Sector\" title=\"FDI in NBFC Sector\">FDI in NBFC Sector<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/swaritadvisors.com\/blog\/foreign-direct-investment-fdi-in-nbfc\/#NBFC_and_Foreign_Loans\" title=\"NBFC\nand Foreign Loans\">NBFC\nand Foreign Loans<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/swaritadvisors.com\/blog\/foreign-direct-investment-fdi-in-nbfc\/#Modes_of_Bringing_FDI_in_NBFC\" title=\"Modes of Bringing FDI in NBFC\">Modes of Bringing FDI in NBFC<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/swaritadvisors.com\/blog\/foreign-direct-investment-fdi-in-nbfc\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Importance_of_NBFC_in_Indian_Economy\"><\/span>Importance of NBFC in\nIndian Economy<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>India is a developing economy and it requires\nsimplified access to any financial services and support. There is long procedural\ngap between the customer\u2019s requirement and the availability by the financial\nservices offered by the traditional banks. Hence, NBFC\u2019s has a crucial role to\nsupport the businesses and the individuals for fulfilling their requirement to get\npersonal loans, shared investments, working capital loans, and other financial requirements.\n<\/p>\n\n\n\n<p>With the help of the emerging technology, the\nNBFCs are solving the issue of the procedural gap and the time taken for\nlending financial supports. NBFC is the necessity of the emerging time and with\nthe help of Fin Tech it is useful for the India economy.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"_Financials_Activities_of_NBFCs\"><\/span>&nbsp;Financials Activities of\nNBFC\u2019s <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The financial activities of NBFC are which are recognized but are not limited to is given below:<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" loading=\"lazy\" width=\"579\" height=\"338\" src=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/04\/image-1.png\" alt=\"Financials Activities of NBFC\" class=\"wp-image-4432\" srcset=\"https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/04\/image-1.png 579w, https:\/\/swaritadvisors.com\/blog\/wp-content\/uploads\/2021\/04\/image-1-300x175.png 300w\" sizes=\"(max-width: 579px) 100vw, 579px\" \/><\/figure><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"FDI_in_NBFC_Sector\"><\/span>FDI in NBFC Sector<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The\nGovernment of India permits the Foreign Direct Investment (FDI) in the NBFC\nSector in India. In simple terms, it is an investment made by a foreign entity\ninto NBFC of India with the purpose to have control over ownership.<\/p>\n\n\n\n<p>The<strong> Foreign Exchange Management Act, 2000<\/strong><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Foreign_Exchange_Management_Act\" class=\"text-primary\"><strong>[1]<\/strong><\/a><\/sup> is the authority to regulate FDI and FDI is governed by the Reserve Bank of India. FDI in NBFC Sector in India can be made through two different routes:<\/p>\n\n\n\n<p>1) Government Route: The Reserve Bank of India gives the approval to FDIs under the government route.<\/p>\n\n\n\n<p>2) Automatic Route: FDI in NBSC through this route needs no approval from the Authority<\/p>\n\n\n\n<p>After India\nwent through the period of liberalization in 1991, there were major changes\nseen in the Indian economy. One of such change was when there were many foreign\ninvestors showing keen interest to invest their money in the Indian market.<\/p>\n\n\n\n<p>The Indian\nGovernment has allowed 100% Foreign Direct Investment in the Non- Banking\nFinancial services via an automatic route without having any norms on\ncapitalization and restricted ambit of the activities. Now, as notified by the\nGovernment the NBFC\u2019s are qualified to receive 100% FDI under the automatic\nroute governed by financial regulators like SEBI, IRDA, RBI, National Housing\nBank or any other regulator.<\/p>\n\n\n\n<p>Thus,\nFDI norms in India were made easy and FDI in the non-banking sector was\npermitted only under automatic route preferred in 18 non-banking financial\nservice activities which were subject to compliance with the norms of minimum capitalization.\nFurthermore, these were divided into activities on the basis of fund-based and\nnon-fund-based.<\/p>\n\n\n\n<p><strong>The particular fund-based activities were:<\/strong><\/p>\n\n\n\n<ol><li>Merchant\nBanking<\/li><li>Underwriting<\/li><li>Stock\nBroking<\/li><li>Portfolio\nManagement Services<\/li><li>Asset\nManagement<\/li><li>Venture\nCapital<\/li><li>Custodial\nServices<\/li><li>Micro\nCredit<\/li><li>Finance,\nHousing Finance<\/li><li>Factoring, Leasing<\/li><li>Credit\nCard Business<\/li><li>Rural\nCredit<\/li><\/ol>\n\n\n\n<p>Those\nwhich do not deal with the cash transactions or creditor are the non-fund-based\nactivities, and they are:<\/p>\n\n\n\n<ol><li>Forex\nBroking<\/li><li>Financial\nConsultancy<\/li><li>Investment\nAdvisory Services<\/li><li>Money\nChanging Business<\/li><li>Credit\nRating Agencies<\/li><\/ol>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"NBFC_and_Foreign_Loans\"><\/span>NBFC\nand Foreign Loans<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The loan taken\nfrom the foreign institutions is referred to as \u2018External Commercial\nBorrowings\u2019 (ECB).These loans can be easily obtained from the foreign banks and\nthe foreign financial institutions. Further, the shareholder can give the ECBs as\nwell but it is mandatory for such a shareholder to be the resident of India and\nshould own a minimum 25% of the borrower\u2019s company total share. <br>\n<br>\nThe interest rates in India are high in comparison to the rest of world and\nthus it is very beneficial for the Indian companies to take loans from other\ncountries with low interest rates. FDI in NBFC is also very much preferred\nbecause the foreign investors invest more money in comparison to the Indian\nresource<\/p>\n\n\n\n<p>The other\nreason is that the foreign investors are attracted to the Indian companies in different\nstages of growth and development and for several reasons because India has\ngrowing customer base. Thus, FDI in NBFC can see more escalation in an emerging\nIndian economy in comparison with the western markets which present only limited\ngrowth opportunities.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Modes_of_Bringing_FDI_in_NBFC\"><\/span>Modes of Bringing FDI in NBFC<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The FDI in\nNBFC can avail investment not only in liquid currency but also in few other\nways like shares, exchange of shares, converting loans into shares, exchange of\nfew skill sets etc.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span>Conclusion<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>\u00a0For FDI in NBFC under the automatic route the NBFCs is required to submit the Form 83 to the authorized bank for obtaining the LRN number. The Loan Registration Number must be compulsorily certified by the chartered accountant or company secretary. The investment by foreign investors is an advantage since it has stimulated the Indian economic growth with increase of FDI in NBFC sector.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/swaritadvisors.com\/blog\/foreign-investment-criteria-for-nbfcs\/\">A Comprehensive Analysis on Foreign Investment Criteria for NBFCs<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>A Non-Banking Financial Company or NBFC is a company registered under the Companies Act and is involved in wide-ranging businesses of financial services including financial institution. The license to manage as NBFC and adhere to its compliances is regulated by the Reserve Bank of India (RBI). These companies take on the business of advances and [&hellip;]<\/p>\n","protected":false},"author":7,"featured_media":4439,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[58],"tags":[604],"acf":[],"_links":{"self":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/4431"}],"collection":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/comments?post=4431"}],"version-history":[{"count":15,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/4431\/revisions"}],"predecessor-version":[{"id":4448,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/posts\/4431\/revisions\/4448"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media\/4439"}],"wp:attachment":[{"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/media?parent=4431"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/categories?post=4431"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/swaritadvisors.com\/blog\/wp-json\/wp\/v2\/tags?post=4431"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}