India's central bank on Monday released an operational framework for reclassifying equity investments made by foreign portfolio investors (FPI) that exceed the prescribed limit as foreign direct investment (FDI).

The new framework aims to streamline foreign investments, offering FPIs a compliant route to maintain stakes in Indian firms above the 10% cap.

The RBI Monday directed FPIs to obtain necessary approvals from the government and concurrence from the investee companies when their equity holdings go beyond the prescribed limits and they reclassify the holdings as FDI.

The new rules, developed in coordination with the government of India and the Securities & Exchange Board of India, establish clear protocols for reclassifying Foreign Portfolio investment (FPI) as Foreign Direct Investment (FDI) when holdings surpass 10 per cent of a company's fully diluted equity capital.

As per the RBI framework, the foreign portfolio investors have the option of divesting their holdings or reclassifying such holdings as FDI if the 10 per cent cap is breached. This reclassification has to be completed "within five trading days from the date of settlement of the trades causing the breach.

The Reserve Bank of India on Monday announced that a foreign portfolio investor (FPI) investing in excess of the prescribed 10 per cent limit in a company, shall have the option of divesting their holdings or reclassifying such holdings as foreign direct investment (FDI).

The Reserve Bank of India on Monday issued an operational framework for reclassification of investment made by a foreign portfolio investor to foreign direct investment (FDI) if the entity breaches the prescribed limit.

The current law says an FPI cannot hold more than 10% of the total paid-up equity capital as portfolio investment in an Indian company. The investment is categorised as foreign direct investment (FDI) if the holding exceeds the 10% limit.