Financial Regulatory Quarterly Milestones (April-June 2026)

On 12 June 2026, the Ministry of Finance (Department of Economic Affairs) notified the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026 (Amendment Rules) amending the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019 (NDI Rules). The Amendment Rules primarily broaden the Schedule III investment route by extending it, from Non-Resident Indian (NRI) and Overseas Citizen of India (OCI), to all individual persons resident outside India (PROI). This permits foreign individuals to invest in and divest listed Indian securities on a repatriation basis, subject to the applicable conditions.

The Amendment Rules also revise the investment thresholds under Schedule III, as follows:

1. Individual Limit: An individual PROI’s holding in a listed Indian company cannot exceed 10% of the company’s total paid-up equity capital on a fully diluted basis or 10% of the paid-up value of each series of debentures, preference shares or share warrants issued by the company.
2. Aggregate Limit: The aggregate holding of PROIs cannot exceed 24% of the total paid-up equity capital on a fully diluted basis or 24% of the paid-up value of each series of debentures, preference shares or share warrants.

The overall holding of a PROI across investments made under Schedule II, Schedule III or any other applicable schedule of the NDI Rules remains subject to the 10% individual limit. The Amendment Rules also prescribe the consequences of a breach of this limit. Where an individual PROI exceeds the 10% limit, the excess holding must be divested within five trading days from the date of settlement of the trades resulting in the breach. If the PROI fails to divest within this period, the investment will be treated as Foreign Direct Investment (FDI), and the PROI will be prohibited from making any further foreign portfolio investment in the concerned company.

On 5 May 2026, the International Financial Services Centres Authority (IFSCA) notified amendments to the International Financial Services Centres Authority (Finance Company) Regulations, 2021, (FC Regulations) introducing a dedicated framework for Special Purpose Vehicles (SPV). The framework enables SPVs to be structured within GIFT International Financial Services Centre (IFSC), facilitating leasing and financing activities and supporting the development of the leasing and financing ecosystem, while also enhancing the ease of doing business within the IFSC ecosystem.

The amendments define an SPV as a finance company incorporated or administered, or both, by a Trust and Company Service Provider (TCSP), in such manner as may be specified by IFSCA, for undertaking permissible activities. The amendments expressly recognise IFSCA-permitted leasing or financing activities undertaken by SPVs as permitted non-core activities under the FC Regulations. SPVs are also exempt from the prudential regulatory, corporate governance and disclosure requirements otherwise applicable to finance companies.

The amendments provide statutory recognition to SPVs as a distinct structuring vehicle under the FC Regulations, enabling specified financing and leasing activities to be undertaken through dedicated entities. The requirement of SPVs to be incorporated or administered by regulated TCSPs also ensures a defined governance and compliance framework for these vehicles.

These developments reflect the continued emphasis of the financial sector regulators on strengthening market infrastructure, facilitating foreign investment and expanding the regulatory framework for financial services in GIFT IFSC.