The Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) (Third Amendment) Regulations, 20251 ("2025 NDI Amendment") notified by the Reserve Bank of India on January 14, 2025, brings in changes to the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 ("NDI Payment Regulations").
Scope of Inward Remittances
The 2025 NDI Amendment now permit persons resident outside India to make remittances into India for purchase of equity instruments of Indian companies, investments in limited liability partnerships, investments in investment vehicles, and for issue of convertible notes (issued by notified Indian start-up companies) through "banking channels" or out of funds held in any repatriable foreign currency or a Rupee account maintained under the Foreign Exchange Management (Deposit) Regulations, 20162 ("Deposit Regulations"). Prior to the 2025 NDI Amendment, persons resident out of India were permitted to undertake such remittances only through certain specific, restricted classes of accounts, such as Non-Resident (External) Rupee Accounts or Foreign Currency (Non-Resident) Accounts.
Definition of "Banking Channels"
The 2025 NDI Amendment has also sought to bring in clarity by providing a definition of the term "banking channels", which was undefined under the NDI Payment Regulations. As per the 2025 NDI Amendment, now, persons resident outside India are permitted to make remittances out of Rupee Vostro Accounts, including Special Rupee Vostro Accounts, now defined as "banking channels", in accordance with Regulation 7(1) of the Deposit Regulations.
Investment in Indian Depository Receipts (IDRs) by Foreign Portfolio Investors (FPIs)
Earlier, the NDI Payment Regulations did not provide for investments by Foreign Portfolio Investors in Indian Depository Receipts; however, now, as per the 2025 NDI Amendment, Foreign Portfolio Investors are now permitted to invest in Indian Depository Receipts using funds held in a Foreign Currency Account or a Special Non-Resident Rupee Account.
Conclusion
In conclusion, the 2025 NDI Amendment represents a significant change in India's foreign investment framework by liberalizing, expanding and clarifying the channels through which foreign investments can be made into Indian entities. The 2025 NDI Amendment's expansion of permissible accounts for inward remittances provides foreign investors with greater flexibility and streamlines the process of mode of payment and remittance for foreign investments in India.
Footnotes
1. https://rbi.org.in/Scripts/NotificationUser.aspx?Id=12768&Mode=0
2. https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=10325&Mode=0
Originally published 23.03.25
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