RBI allows 49 per cent FDI in stock exchanges

Mumbai: The Reserve Bank of India has allowed foreign investment up to 49 per cent in stock exchanges, depositories and clearing corporations. Till now FDI with the prior approval of the Foreign Investment Promotion Board, had been capped at 26 per cent while the limit on Foreign Institutional Investment (FII) was 23 per cent.

An RBI release said FIIs can pick up stakes only through secondary market purchases and "shall not seek and will not get representation on the board of directors."

In a separate release, the SEBI stipulated "No foreign investor, including persons acting in concert, will hold more than 5 per cent of the equity in these companies". This will apply only to stock exchanges.

In November, SEBI had capped individual investment, direct or indirect, at five per cent. It had also stipulated that persons (or persons acting in concert) must meet eligibility requirements set down by the SEBI to acquire more than one per cent of the paid up equity capital of a recognised stock exchange.

Dr R H Patil, chairman, Clearing Corporation of India Ltd, said the directive will have a more direct impact on the Bombay Stock Exchange rather than the NSE which has been a corporate entity since its inception. The only impact, if any, would be if the existing shareholders of NSE decide to sell their shares to FIIs.

"Given that it is a profit making organisation, there appears to be no reason for NSE to tap the market to finance any of its expansion plans," Dr Patil said.