Government is considering relaxing norms for foreign investment in sectors like banking and telecom by treating portfolio FII investment outside the sectoral cap.

At present, foreign direct investment (FDI) and foreign institutional investments (FII) are added to determine sectoral foreign investment cap in banking, credit information companies, broadcasting, commodity exchanges and telecom. 

But, with RBI allowing FIIs to acquire shares in companies under the Portfolio Investment Scheme (PIS), the government is now likely to mandate that sectoral caps would henceforth be for FDI investment only, official sources said.

In sectors with caps, the balance equity would specifically be beneficially owned by/held with/in the hands of resident Indian citizens and Indian companies, owned and controlled by resident Indian citizens.

FIIs investing under PIS shall not seek a representation on the board of directors and they will have to give a self- declaration whenever they act in concert with any of the companies that they have invested in.

Sources said investments by registered FIIs under PIS are made under Schedule 2 of the Foreign Exchange  Management Regulations and are distinct from FDIs which are made under Schedule 1. FIIs are also permitted to make investments under FDI Scheme under Schedule-1.

PIS cannot cross 24 per cent in any company.

At present, banking and telecom have 74 per cent foreign investment cap (FDI plus FII), which would, after the policy is accepted by the Cabinet, be changed to 74 per cent FDI.

Similarly, 20 per cent FDI plus FII limit in FM radio would now be 20 per cent FDI cap, while 49 per cent FDI plus FII in cable network, direct-to-home commodity exchange and CIC would be changed accordingly.