RBI sets 26% FDI limit in bourses, depositories

The Reserve Bank of India (RBI) today allowed 49% foreign investment in stock exchanges, depositories and clearing corporations in compliance with the regulations of Securities and Exchange Board of India (Sebi).

While foreign direct investment (FDI) has been capped at 26%, foreign institutional investors (FII) can acquire up to 23% stake through purchases in the secondary market.

Technically, the Bombay Stock Exchange (BSE) can now get 26% equity investment from the New York Stock Exchange (NYSE) or the London Stock Exchange (LSE).

Sebi norms limit FDI by a single entity to 5% in stock exchanges. The depositories' regulations, too, have a ceiling of 5% for a single entity.

"The situation is now very clear. The exchanges now know how much they will be offering to the foreign players. Many global players have already evinced interest in being strategic partners of BSE. I think BSE would also find it easy now to go ahead with these proposals," Dina Mehta, former vice president of BSE, said.

R H Patil, chairman of Clearing Corporation of India (CCIL), said foreign investors will be keen on buying stakes in CCIL only when overseas investments in Indian bonds grow substantially. At present, FII investment in debt is just about $1 billion. CCIL provides a clearing platform for settlement of trades in bond and inter-bank foreign exchange markets.

FDI in these securities markets companies would be subject to specific prior approval of the Foreign Investment Promotion Board (FIPB). FIIs will be allowed to buy shares of these securities market entities only from the secondary market which rules out pre-IPO allotment, which was one of the options being considered by the BSE.