RBI allows 49% single-entity FDI in credit info companies

The Reserve Bank of India (RBI) has allowed up to 49 per cent foreign investment in credit information companies (CICs) by a single entity.

This forms part of the revised notification on foreign direct investment (FDI) in CICs. In its earlier circular, while the RBI allowed FDI in CICs up to 49 per cent, it had directed that investments directly or indirectly made by a single entity, whether resident or otherwise, should not exceed 10 per cent of the equity capital of the company.

However, the current notification has clarified that the foreign entity investing in India should not have any single investor with more than 10 per cent voting rights. Voting right is usually limited to share holding in a company. However, in this case, the voting right is limited to 10 per cent of the total share capital of the company even if the shareholding of the entity is above 10 per cent. Official sources close to the development clarified that this distinction has been made to avoid conflict of interest between the foreign investing company and its other businesses.

 

Sources explained that such problems could arise if the foreign investor was a holding company and it had other businesses such as banking, which, in turn, could use information of the CIC for its own business. Restriction in voting right could limit such decisions.

The RBI has clarified that the investor should have an established track record of running a credit information bureau in a well-regulated environment and it should be listed on a recognised stock exchange. In case the investor is a wholly-owned subsidiary of an investment holding company, these conditions would apply. The revision follows discrepancies in FDI norms under press note 1, 2008 and the subsequent RBI notification, which had different views on single entity foreign holding in such companies.