The Reserve Bank of India (RBI) on October 20 relaxed foreign investment norms in financial services firms, startups and in investments by foreign regulated capital investors.

The RBI has allowed 100% foreign investment through automatic route in financial services other than banks or insurance companies. These companies must be overseen by a financial services regulator including the RBI, Sebi, Insurance Regulatory and Development Authority of India, Pension Fund Regulatory and Development Authority, and the National Housing Bank.

When it comes to financing startups, the RBI has said that Foreign Venture Capital Investors (FVCIs) registered with Sebi can invest in equity or equity-linked instruments or debt instruments issued by an Indian ‘startup’ irrespective of the sector in which the startup is engaged.

According to the RBI, a startup will mean an entity (private limited company or a registered partnership firm or a limited liability partnership) incorporated or registered in India not prior to five years, with an annual turnover not exceeding Rs 25 crore in any preceding financial year, working towards innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property and satisfying certain conditions.

FVCIs have also been allowed to invest in unlisted equity or ‘equity-like’ instruments in 10 sectors without approval from the RBI. The 10 sectors include biotechnology, IT related to hardware and software development, nanotechnology, seed research and development, research and development of new chemicals in medicine, dairy industry, poultry industry, and production of bio-fuels, hotels-cum-convention centres with seating capacity of over 3,000 and in the infrastructure sector.

Source: Times of India