RBI Opens Indian Stock Markets To All Foreign Individual Investors

The Reserve Bank of India (RBI) has opened up direct access to the equity market for all persons residing outside of India; earlier the access was limited to non-resident Indians (NRIs) and overseas citizens of India (OCIs). The central bank issued the notification on 13 June, with the new norms taking effect immediately.

The move operationalises a budget proposal and follows the government's amendment to the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, which broadened the definition of eligible investors.

How The New Route Works

Authorised dealer banks can now open repatriable rupee accounts specifically for overseas individual investors seeking to buy equity instruments of listed Indian companies. The framework works as follows:

• Investments can be made through inward remittances or funds held in repatriable deposit accounts.

• Each overseas investor must designate a specific repatriable rupee account used exclusively for equity market transactions.

• Sale proceeds can either be repatriated overseas or credited back to the designated rupee account after applicable taxes are paid.

• Reporting will be handled by authorised dealer banks under a new category called Individual Foreign Investor.

Breaching prescribed investment limits would trigger a reclassification from foreign portfolio investment to foreign direct investment under the existing framework.

The Practical Hurdle

The policy change expands the pool of eligible investors. But bringing those investors on board may take more time than the notification indicates.

Foreign individuals looking to invest through an Indian rupee bank account still need to complete a lengthy compliance process. Under the Foreign Exchange Management Act, banks require several documents, including attested identity and address proofs, before allowing such investments.

The ease of opening such accounts for foreign nationals, as opposed to non-resident Indians who have established channels, remains to be tested in practice.

Previously, foreign individuals gained exposure to Indian equities largely through pooled vehicles managed by foreign institutions, Category III alternative investment funds, or limited non-resident Indian channels. The new route creates a direct path that bypasses those structures entirely.

The Bigger Picture

The change is one of several measures the central bank has pushed through in recent weeks to attract foreign currency inflows and stabilise the rupee.

Last week the Reserve Bank of India opened a special window for banks to raise foreign currency non-resident deposits from non-resident Indians, the first such window since 2013, and offered a fixed-rate swap facility for external commercial borrowings by public sector units.

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Foreign exchange reserves had fallen to $681 billion from a peak of $728 billion in February. The central bank's net short forward position stood at $95 billion as of April, reflecting the scale of intervention deployed to support the rupee during the conflict period.

Sources:

Business Standard

The Economic Times