RBI tightens screws around Mauritius based investments into NBFCs

Mumbai: Mauritius continues to be on the receiving finish of regulatory flip-flops in India with a recent blow coming from the Reserve Bank of India(RBI). Last week the banking regulator got here out with a diktat saying no entity coming from a non-Financial Action Task Force (FATF) jurisdiction can maintain greater than 20% of voting rights in a non-banking monetary firm (NBFC). This would instantly influence the investments coming from Mauritius because the island nation has been placed on the ‘Grey List’ of FATF.

This stance taken by RBI is in steep distinction with that of what the central authorities did final 12 months. In June 2020, the Finance Ministry introduced out a round giving particular dispensation to Mauritius based funds by way of overseas portfolio investor (FPI) licenses.

“The Indian regulatory dilemma on how to deal with fresh investments from non FATF compliant jurisdictions like Mauritius continues as RBI whilst progressing from its earlier prohibitive stance has still permitted only less than 20% direct or indirect voting by investors from such jurisdictions in existing NBFCs or fresh applicants,” mentioned Tejesh Chitlangi, accomplice, IC Universal Legal. “It’s going to be therefore challenging for control investments to be routed from the otherwise preferred jurisdictions like Mauritius in the NBFC space,”

The improvement assumes significance as Mauritius is amongst the most well-liked jurisdictions for routing NBFC funding because the curiosity revenue earned by Mauritius entities is exempt from taxes in India. Various media stories final 12 months mentioned that the banking regulator had put functions of a number of start-ups together with Bharatpe, Car Dekho and Jupiter Fund administration on maintain for utilizing the Mauritius route.

“Earlier last year, there was ambiguity regarding routing of investments in NBFCs through Mauritius. The new rules now clarify that new investors from Mauritius and other jurisdictions which are subject to increased monitoring cannot acquire significant influence in NBFCs,” mentioned Moin Ladha, accomplice, Khaitan & Co. “The rules further set the shareholding threshold at 20% which is lower than the 26% threshold triggering an approval requirement for change in shareholding,”

Mauritius is the second largest supply of each overseas portfolio funding(FPI) and overseas direct funding(FDI) coming into India. Currently Mauritius based funds personal property value Rs 4.6 lakh crore which roughly constitutes 11% of complete FPI investments into India.

“The RBI stance is going to impact Mauritius the most and choke liquidity options for those NBFC which are in discussion for funding from Mauritius domiciled entities,” mentioned Neha Malviya, govt director, Wilson Financial Services – an FPI dealer. “While SEBI took a relaxed view and allowed Category 1 FPI license to funds from Mauritius RBI has taken a total divergent view,”

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