Pursuant to an amendment to the Consolidated Foreign Direct Investment Policy in June 2016, the Reserve Bank of India, by its Notification dated November 04, 2016, has amended the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 as applicable to the pension sector in India.
Earlier, FDI in the pension sector in India was capped at 49% wherein FDI up to 26% was permissible to be brought under the Automatic route. Any FDI beyond 26%, up to a limit of 49%, required prior approval from the Foreign Investment Promotion Board. Although FDI in the pension sector continues to be capped at 49%, up to 49% FDI can now be brought under the Automatic route, subject to certain sectoral conditions.
Firstly, the foreign entity bringing in FDI shall be required to obtain necessary registration from the Pension Fund Regulatory and Development Authority Act, 2013 (PFRDA) and comply with other requirements of the PFRDA Act and Rules and Regulations framed thereunder. Secondly, both ownership and control of such Indian pension fund shall at all times be required to remain with resident Indian entities, as determined by the Government of India/ PFRDA from time to time. A company shall be considered as ‘owned’ by resident Indian citizens if more than 50% of the capital in it is beneficially owned by resident Indian citizens and/or Indian companies, which are ultimately owned and controlled by resident Indian citizens. The import of the term ‘control’ includes the right to appoint a majority of the directors or to control the management or policy decisions including by virtue of their shareholding or management rights or shareholders agreements or voting agreements.
It is important to note that parallel amendments are yet to be effected to Section 24 of the PFRDA Act, 2013, which as on date, continues to stipulate that the aggregate holding of equity shares by a foreign company, either by itself or through its subsidiary companies or its nominees or by an individual or by an association of persons whether registered or not under any law of a country outside India, taken in aggregate in a pension fund, shall not exceed 26% of the paid-up capital of such fund or such percentage as may be approved for an Indian insurance company under the provisions of the Insurance Act, 1938, whichever is higher.