RBI notifies the Foreign Exchange Management (Non-Debt Instruments) (Third Amendment) Rules, 2026.

The Ministry of Finance (“MoF”), Department of Economic Affairs, has, vide Notification No. S.O. 3030(E) dated June 12, 2026 (“Third Amendment Rules”), notified the Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2026, amending the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (“NDI Rules”). Prior to the Third Amendment Rules, Schedule III of the NDI Rules, read with Chapter V, permitted only Non-Resident Indians (“NRIs”) and Overseas Citizens of India (“OCIs”) to purchase and sell equity instruments of listed Indian companies on a repatriation basis under the Portfolio Investment Scheme.

The Third Amendment Rules introduce, inter alia, the following key changes:

1. Under Rule 12 read with Chapter V (including its title) and Schedule III of the NDI Rules, replace the expression “Investment by Non-Resident Indian or Overseas Citizen of India” with “Investment by an individual person resident outside India, including a Non-Resident Indian or an Overseas Citizen of India”. As a result, any individual person resident outside India may now purchase or sell equity instruments of listed Indian companies on a repatriation basis, in accordance with the framework set out under the NDI Rules.

2. Paragraph 1 of Schedule III has been amended to prescribe inter alia that prescribes that an individual person resident outside India may purchase or sell equity instruments of a listed Indian company on repatriation basis, on a recognised stock exchange in India, subject to the following conditions, namely- an individual person resident outside India may purchase and sell equity instruments through a branch designated by an Authorized Dealer for the purpose; and the total holding by any individual person resident outside India shall be less than ten per cent of the total paid up equity capital on a fully diluted basis or shall be less than ten per cent of the paid-up value of each series of debentures or preference shares or share warrants issued by an Indian company and the total holdings of all individual person resident outside India put together in the Indian company under this schedule shall not exceed twenty four per cent of the total paid-up equity capital on a fully diluted basis or shall not exceed twenty four per cent of the paid-up value of each series of debentures or preference shares or share warrants.

3. Investment made by an individual person resident outside India under these rules in breach of the prescribed limit of less than ten per cent shall be required to be divested within five trading days from the date of settlement of the trades causing the breach. In case the individual person resident outside India chooses not to divest, then the entire investment in the concerned company by such individual person resident outside India shall be considered as foreign direct investment (FDI) and such individual person resident outside India shall not make further portfolio investment in the company concerned.

4. The individual person resident outside India, through the designated branch of Authorized Dealer, shall bring the same to the notice of the depositories as well as the concerned company, within seven trading days from the date of settlement of the trades causing the breach. The divestment of holdings by the individual person resident outside India and the reclassification of foreign portfolio investment as FDI, shall be subject to the same conditions as specified by Securities and Exchange Board of India and the Reserve Bank for a foreign portfolio investor (FPI). The breach of the said aggregate or sectoral limit on account of such acquisition for the period between the acquisition and sale or conversion to FDI within the prescribed time, shall not be reckoned as a contravention under these rules.

Conclusion:

In effect, the Third Amendment Rules broaden the scope of eligible individual non-resident investors under Schedule III of the NDI Rules, while retaining the existing portfolio investment limits and breach-cure framework. The amendment is therefore aimed at widening market access for individual non-resident investors, with continued safeguards around monitoring, reporting and reclassification where prescribed thresholds are crossed.