Govt May Tighten FDI Norms for NBFCs, Realty Firms.

Institutional investors wanting to be a part of India’s booming real estate sector may now have to be more patient to reap the rewards. It is because the government is planning a new regulation wherein money poured in by investors in NBFCs and realty companies could be locked in.

Sources tell NDTV that the government may issue fresh riders for raising foreign direct investment by companies in these sectors. One suggestion is to have every tranche of investment in these companies to adhere to a 3-year lock-in clause.

NDTV has further learnt that the move is aimed at plugging the existing loopholes. The government suspects that many foreign investors put in 10-15 per cent of the total capital in the first tranche. In some deals, as much as 50-60 per cent of the total committed investment was found to be made after two years of bringing the first tranche. As a result, investors were able to repatriate a substantial portion of their investment, in just a matter of a year or so.

Sources say that to plug this loophole, DIPP has already moved a cabinet note. A policy change is expected to be formally announced by the end of the month.

The move may have an adverse effect on both these sectors, particularly for those looking for short term investment.

“As it is, we are finding it increasingly difficult to raise funds, with RBI tightening lending norms to the sector. This perception that real estate is responsible for hot money in the country is wrong. We will make a representation to the finance ministry to take up the matter,” said Geetambar Anand, Vice-President, CREDAI and MD of ATS.

Contrary to the apprehensions of the industry, the government's argument is that it is in the interest of all stakeholders to keep speculative short term investors at bay. A move like this, will help churn out such investments, and the country will only attract foreign capital from long term investors, having a strategic interest in the economy.

Source : profit.ndtv.com