JSA Newsletter | Private Equity | April – June 2026 Edition

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Introduction

As per publicly available information, private equity and venture capital investments in India declined by 3% during the second quarter (April–June) of the calendar year 2026 to USD 6.45 billion (United States Dollars six point four five billion) (across 266 (two hundred and sixty six) deals), compared with USD 6.60 billion (United States Dollars six point six billion) (across 309 (three hundred and nine) deals) during the corresponding quarter last year.[1] Deal volumes in Q2’26 fell by 14% compared to Q2’25 and by 29% compared to the immediate previous quarter.[2]

This newsletter captures the regulatory developments from April 2026 to June 2026 relating to Alternative Investment Funds (“AIFs”), Foreign Portfolio Investors (“FPIs”), Infrastructure Investment Trusts (“InvITs”), Real Estate Investment Trusts (“REITs”) and Foreign Direct Investment (“FDI”) which are likely to shape the investment activities in India.

 

Overview of the Regulatory Measures

The regulatory bodies in India are periodically reviewing the regulatory framework to strengthen investor confidence and bring transparency across the Indian investment and business landscape. Some of the key regulatory developments for the period between April 2026 to June 2026 are:

 

Securities and Exchange Board of India

One time relaxation with respect to validity of Securities and Exchange Board of India observations

Key takeaway: The objective of this relaxation is to offer additional time and relief from additional procedural requirements to the eligible issuers whose SEBI observation letters are set to expire by September 30, 2026. Issuers benefiting from this relaxation should ensure that all material disclosures in their draft offer documents remain accurate and updated, as the lead manager’s undertaking effectively certifies continued compliance with disclosure norms.

The Securities and Exchange Board of India (“SEBI”), vide circular dated April 7, 2026, has granted a one-time relaxation with respect to the validity of SEBI observation letters. In terms of Regulations 44(1) and 59C of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“ICDR Regulations“), a public issue may be opened within 12 (twelve) months and 18 (eighteen) months respectively from the date of issuance of observations by SEBI. A one-time relaxation is granted to extend the validity of SEBI observation letters expiring between April 1, 2026, and September 30, 2026, till September 30, 2026, subject to an undertaking from the lead manager confirming compliance with Schedule XVI of the ICDR Regulations while submitting the updated offer document to SEBI.

 

Relaxation from the applicability of SEBI Master Circular for compliance with the provisions of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 on non-compliance with the minimum public shareholding requirements

Key takeaway: SEBI has provided this one-time relaxation as a pro market relief measure to listed entities. It aims to help them cope with the volatile market conditions arising from the current geopolitical situation, as forced compliance with Minimum Public Shareholding requirements during such periods may result in value erosion for these entities.

SEBI has received representation from an industry body highlighting the difficulties faced by listed entities in achieving compliance with Minimum Public Shareholding (“MPS”) requirements, inter alia, on account of capital market volatility arising from ongoing geopolitical tensions in the Middle East. Pursuant to the same, SEBI, vide circular dated April 7, 2026, has decided to grant one-time relaxation from the applicability of penal provisions under the Master Circular dated July 11, 2023, for listed entities whose due date for compliance with MPS requirements falls during the period from April 1, 2026, to September 30, 2026. Accordingly, recognised stock exchanges and depositories are advised not to take any penal action as envisaged under the Master Circular against such entities for non-compliance during the said period. Further, any penal actions initiated by the stock exchanges or depositories against such listed entities for non-compliance with MPS requirements during the period from April 1, 2026, till date of issuance of the circulate dated April 07, 2026 may be withdrawn.

 

Mechanism for lock-in of pledged shares under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018

Key takeaway: Through the March 2026 development, SEBI legitimised the non-transferable mechanism to address the practical challenge faced by promoters where their pledged shares could not technically be “locked-in”. This provided a pragmatic solution that preserves the regulatory intent of restricting transferability while accommodating legitimate financing arrangements. The framework operationalises the mechanism and enables depositories to mark such shares as “non-transferable”.

SEBI, vide notification dated March 21, 2026, had amended the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018, to provide that specified securities on which lock-in cannot be created, may be recorded as “non-transferable” by depositories for the duration of the applicable lock-in period. To operationalize this, the depositories have issued the framework to be followed by issuers including, inter-alia, incorporation of suitable provisions in the articles of association, issuance of necessary intimations to the concerned lenders / pledgees, and suitable disclosures in the offer documents, as set out in SEBI circular dated April 8, 2026. Accordingly, stock exchanges, depositories, merchant bankers and issuers must ensure compliance with the mechanism for lock-in of pledged shares.

 

Advisory on emerging advanced artificial intelligence tools for vulnerability detection

Key takeaway: Several Indian regulators are proactively addressing the threat of cyber risks by issuing the procedural guidelines. This advisory reflects SEBI’s stance in addressing emerging systemic cyber risks arising from advanced AI tools that can identify and potentially exploit vulnerabilities at unprecedented speed and scale. By constituting the ‘cyber-suraksha.ai’ task force, SEBI has institutionalised a coordinated, sector-wide approach to threat intelligence sharing and vulnerability management, recognising that in an interconnected securities market ecosystem, a breach at one node can cascade across the entire market infrastructure.

Due to the interconnectedness and interdependency of market participants in the securities market ecosystem, a periodic coordinated approach for vulnerability management, information sharing and monitoring/assessment is required to prevent a cascading impact. In view of the above, SEBI, vide circular dated May 5, 2026, has constituted a task force, namely ‘cyber-suraksha.ai’, comprising representatives from market infrastructure institutions, qualified registrars and transfer agents, all qualified regulated entities, and other related stakeholders with the mandate to:

• closely examine the cybersecurity risks posed by Artificial Intelligence (“AI”) based models and devise a uniform mitigation strategy against the risks posed by such models;
• facilitate sharing of threat intelligence, best practices on vulnerability management, use cases and playbooks to respond to the threat vector;
• report on a priority basis, cyber incidents or malicious activities, significant attack vectors, information on vulnerabilities that may be relevant to strengthen the cybersecurity posture of the securities markets; and
• review the cybersecurity posture of the third-party application service providers including empaneled vendors.

The task force convened a meeting to review potential risks posed by AI platforms and to discuss mitigating measures and issued an advisory that should be read in conjunction with applicable SEBI circulars (including but not limited to the Cybersecurity and Cyber Resilience framework) and any subsequent updates issued by SEBI from time to time.

 

Infrastructure Investment Trusts and Real Estate Investment Trusts

Amendments to REITs and InvITs

Key takeaway: This calibrated approach enhances the operational flexibility for REITs and InvITs whilst addressing practical challenges faced by market participants. The reduction in the minimum credit risk value threshold and the inclusion of Class B-I instruments expands the universe of permissible temporary investments, enabling trusts to optimise yields on idle funds and reduce ‘cash-drag’ on returns. Significantly, the clarification that an SPV’s status is preserved even after the conclusion or termination of a concession agreement addresses a longstanding practical issue for InvITs. Previously, such SPVs risked being treated as non-compliant despite continuing statutory obligations, tax proceedings, and defect liability requirements that necessitated their continued existence.

SEBI, vide notifications dated April 16, 2026, has introduced amendments under the SEBI (REITs) (Amendment) Regulations, 2026 and SEBI (InvITs) (Amendment) Regulations, 2026. Some of the key amendments are as follows:

• the definition of ‘liquid asset’ is amended. The minimum credit risk value threshold is reduced to 10 (ten) (earlier this was 12 (twelve)) for cash, units of overnight mutual fund schemes and units of liquid mutual fund schemes, and instruments under Class B-I are now included (along with Class A-I) in the potential risk class matrix; and
• under the provisions of ‘investment conditions and distribution policy’, the credit risk value of units of liquid mutual funds schemes is reduced to 10 (ten) (earlier this was 12 (twelve)) and instruments under Class B-I are now included (along with Class A-I) in the potential risk class matrix.

Further, under the SEBI (InvITs) (Amendment) Regulations, 2026, the definition of Special Purpose Vehicles (“SPVs”) is amended. An SPV is defined to mean a company or a limited liability partnership which holds not less than 90% of its assets directly in infrastructure projects and does not invest in other SPVs. A proviso is inserted stating that in respect of a SPV holding an infrastructure project, the conclusion or termination of the concession agreement or such other agreement of a similar nature must not affect its status as an SPV and such an SPV will continue to be classified as an SPV subject to the fulfilment of such conditions specified by SEBI. The restriction on investing not more than 20% of the value of the assets of an infrastructure investment trust (InvIT) under Regulation 18(5)(b) of the SEBI (InvITs) Regulations, 2014 has been amended to extend to SPVs (as defined above) as well.

 

Status of SPVs post conclusion or termination of concession agreement

Key takeaway: This is a significant reform as it addresses a long-standing regulatory gap in the status of SPVs post expiry or termination of a concession agreement. It aligns the regulatory framework with the natural lifecycle of infrastructure assets, recognising that immediate exit is often unfeasible due to continuing statutory obligations, tax proceedings, litigation, and defect liability requirements.

SEBI, vide circular dated May 15, 2026, has, further to the SEBI (InvITs) (Amendment) Regulations, 2026, clarified the status and treatment of SPVs after the conclusion or termination of concession agreements in infrastructure projects held by InvITs. The circular prescribes the conditions and timelines for exiting such investments or acquiring new infrastructure projects, while also mandating detailed disclosures to ensure transparency, investor protection, and proper regulatory oversight. The investment manager must:

• either exit investment in such SPV by way of sale/liquidation/winding-up/merger of such SPV, or acquire any new infrastructure project in such SPV, within 1 (one) year from completion/termination of concession agreement or conclusion of all pending claims/litigations/tax assessments and related appeals, or completion of defect liability period, whichever is later; and
• adequate disclosures must be made in the annual report of the InvIT, wherein the concession agreement or such other agreement of similar nature has ended/terminated that includes, inter alia, the following:
• at the InvIT level – a detailed breakup of the value of investments (gross and net basis) in the SPV(s); and
• at the SPV level – additional disclosures pertaining to each SPV, including details of the project, assets and liabilities of the SPV, contingent liabilities, debt repayment, exit strategy, timeline and any other material details related to such SPV (such as pending claims/ litigations/statutory or contractual obligations, etc.).

 

Alternative Investment Funds

SEBI (AIFs) (Amendment) Regulations, 2026

Key takeaway: Through these developments, SEBI has attempted to democratise impact investing and enhance operational efficiency in the AIF ecosystem. The substantial reduction in the minimum investment threshold for social impact funds is aimed to unlock retail participation on the Social Stock Exchange, aligning the entry requirement with the minimum application size for Zero Coupon Zero Principal Instruments under the ICDR Regulations. It seeks to potentially channel significant dormant capital towards Not-for-Profit Organisations working in sectors like healthcare, education, and livelihoods. The introduction of the ‘Inoperative Fund’ classification provides a cleaner exit mechanism for AIFs that have exhausted their fund life without retaining any assets, reducing unnecessary compliance burdens for dormant funds.

SEBI, vide notification dated April 16, 2026, has amended the SEBI (AIFs) Regulations, 2012. Some of the key amendments are as follows:

• the minimum investment for individual investors in social impact funds under Regulation 10(c) (dealing with investment in AIF) is reduced to INR 1,000 (Indian Rupees one thousand) (earlier this was INR 2,00,000 (Indian Rupees two lakh)); and
• Regulation 29 has been amended to provide that distribution of liquidated assets during winding up will be subject to conditions specified by SEBI, and a new sub-regulation 10A has been inserted to provide that an AIF may be tagged as an ‘Inoperative Fund’, in such manner and subject to conditions as may be specified by SEBI from time to time.

On April 30, 2026, SEBI issued a circular on fast-track mechanism for processing of Private Placement Memorandum (“PPM”) of AIF. SEBI has decided to follow a fast-track mechanism for launch of schemes in respect of the PPM filed by angel funds and AIF schemes, other than large value fund for accredited investors. Further, it is clarified that in terms of Regulations 12 (dealing with Schemes) and 19 (dealing with other AIFs) of the SEBI (AIF) Regulations, 2012, AIFs can proceed with launch of their new schemes and circulate the PPM to their investors for soliciting funds after 30 (thirty) days of filing of application with SEBI, unless otherwise advised. Additionally, the first close of the scheme must be declared not later than 12 (twelve) months from the date on which the AIF becomes eligible to launch its scheme.

 

Guidelines for winding up of AIFs and ‘Inoperative Fund’ status

Key takeaway: This development aims to resolve the longstanding “residual cash trap” problem that prevented AIFs from completing their formal winding-up process. Under the old regime, funds were required to achieve a literal “NIL balance” before surrendering registration, but many could not meet this requirement due to pending litigation, tax disputes, or residual operational expenses, leaving them trapped in active regulatory status (with ongoing compliance obligations including quarterly filings, audits, and certifications).  The ‘Inoperative Fund’ framework decouples the fund’s operational step-down from its final bank account closure, allowing AIFs to retain proceeds for legitimate residual obligations, obtain relief from routine compliance requirements, and achieve orderly closure once all liabilities are resolved, whilst maintaining investor protection through mandatory annual reporting and investment restrictions on retained funds.

SEBI, vide circular dated June 16, 2026, has issued guidelines permitting AIFs and erstwhile Venture Capital Funds, to retain liquidation proceeds beyond their permissible fund life and obtain an ‘Inoperative Fund’ status in specified circumstances. Some of the key provisions are as follows:

• AIFs may retain liquidation proceeds beyond the liquidation or dissolution period where: (a) a litigation notice, tax demand, regulatory communication or similar legal claim has been received; (b) at least 75% of investors by value consent to retention for anticipated liabilities arising due to a possible/probable litigation or tax demand; or (c) monies are required for residual winding-up related operational expenses;
• where retention is based on anticipated liabilities, the manager must disclose the amount proposed to be retained and the estimated retention period to investors while seeking their consent;
• retention of monies for residual operational expenses cannot exceed 3 (three) years from the end of the permissible fund life and must be supported by invoices, records or comparable expense data;
• retained monies must be invested only in permitted liquid instruments in accordance with the SEBI (AIFs) Regulations, 2012;
• AIFs having retained monies and intending to surrender their registration may apply to SEBI for ‘Inoperative Fund’ status, and such status may also be obtained where no monies are retained but the fund continues solely in anticipation of a favourable litigation outcome;
• an AIF tagged as an ‘Inoperative Fund’ cannot launch new schemes or charge management fees and must continue to invest retained monies in accordance with regulatory requirements;
• ‘Inoperative Funds’ are exempt from several ongoing compliance requirements, including activity reports, compliance test reports, performance benchmarking disclosures, valuation requirements, investor reporting obligations and certain certification and custodial requirements; and
• AIFs with retained monies and AIFs tagged as ‘Inoperative Funds’ must submit an annual status report to SEBI and investors, within 30 (thirty) days from the end of each financial year, detailing retained amounts, outstanding liabilities, investments made from retained monies and the expected timeline for resolution.

 

Foreign Portfolio Investors

Limits for investment in debt and sale of credit default swaps by FPIs

Key takeaway: RBI’s intent is to provide a predictable and favourable framework for foreign debt investment, by anchoring limits to a percentage of outstanding stocks rather than fixed absolute figures. It ensures that foreign participation headroom grows organically with market expansion without requiring annual policy recalibration. The merger of voluntary retention route into the General Route simplifies what had become a fragmented multi-route architecture, reducing compliance friction for FPIs whilst preserving incentives for long-term capital commitment.

RBI, vide circular dated April 6, 2026, has revised the investment limits for FPIs in debt instruments for the financial year 2026-27. The investment limits are as follows:

• the limits for FPI investment in Government Securities (“G-Secs”), State Government Securities (“SGSs”) and corporate bonds will remain unchanged at 6%, 2% and 15% respectively, of the outstanding stocks of securities for 2026-27 for the general route;
• the allocation of incremental changes in the G-Sec limit (in absolute terms) over the 2 (two) sub-categories – ‘General’ and ‘Long-term’ – has been retained at 50:50 for 2026-27;
• the entire increase in limits for SGSs (in absolute terms) has been added to the ‘General’ sub-category of SGSs;
• all investments by eligible investors in the ‘specified securities’ will be reckoned under the Fully Accessible Route (“FAR”);
• with effect from April 1, 2026, all existing and future investments under the voluntary retention route are subject to the investment limits stipulated for FPI investments under the general route; and
• the aggregate limit for the notional amount of credit default swaps sold by FPIs has been retained at 5% of the outstanding stock of corporate bonds. Accordingly, an additional limit of INR 3,30,464 crore (Indian Rupees three lakh thirty thousand four hundred and sixty-four crore) has been specified for financial year 2026-27.

 

Removal of difficulties for Permanent Account Number allotment for FPIs

Key takeaway: SEBI’s engagement with CBDT reflects an institutional recognition that tax compliance architecture must accommodate international operational realities. By introducing pragmatic alternatives for certain mandatory fields and simplifying documentation requirements, the clarifications are intended to facilitate a smoother PAN allotment process and reduce administrative hurdles for foreign investors seeking to invest in India.

SEBI, vide press release dated May 15, 2026, has addressed certain difficulties relating to Permanent Account Number (“PAN”) allotment for FPIs. The Central Board of Direct Taxes (“CBDT“) had notified the Income-tax Rules, 2026 and new PAN Forms on March 20, 2026 with new/mandatory fields. SEBI engaged with CBDT to facilitate continued ease of PAN allotment to FPIs. Some of the key clarifications include:

• for the representative assessee/authorised representative field, the name of the Authorised Signatory (“AS“) in the Common Application Form must suffice, with liability limited to PAN application purpose, and no supporting documents are needed;
• the address, mobile number, and email of the AS may be provided, if unavailable, FPI details can be used;
• where the PAN, Aadhaar or passport details of the AS are available then the same may be furnished. However, if these details are not available then the FPI registration number may be provided;
• where a Tax Identification Number is not applicable, the field may be populated with “0000000000”; and
• where a mobile number is unavailable, a landline number may be provided.

 

Amendments to the regulatory framework on investments by the FPIs in G-Secs

Key takeaway: The withdrawal of short-term limits, security-wise caps, and concentration thresholds signals a deliberate shift from micro-regulatory oversight to a framework based solely on aggregate market-wide ceilings, allowing FPIs to allocate across maturities and individual securities based purely on commercial considerations. The expansion of the FAR to include 15 , 30, and 40-year tenors (along with sovereign green bonds) is strategically aligned with India’s desire to attract long-duration institutional capital pension funds, sovereign wealth funds, and insurance companies, that require matching long-tenor assets, whilst also supporting the Government’s sustainable finance agenda through green bond inclusion.

Until recently, the investments by FPI in G-Secs through the general route were subject to: (i) short-term investment limit, (ii) security wise limit, and (iii) concentration limits. In order to provide greater ease of investment to FPIs, the RBI, vide circular dated June 5, 2026, has introduced amendments to the regulatory framework governing investments by FPIs in G-Secs. Some of the key amendments are as follows:

• the requirement for FPIs to comply with the short-term investment limit, security-wise limit, and concentration limit, for their investments in G-Secs under the general route is withdrawn;
• the ‘general’ and ‘long-term’ sub-categories of investment limits for Central G-Secs and State G-Secs have been merged into a single limit for each category;
• the investment limits for financial year 2026–27 are revised;
• the definitions of ‘long-term FPIs and short-term investments’ have been omitted from the RBI (Non-resident Investment in Debt Instruments) Directions, 2025;
• the proviso exempting investments made under the special rupee vostro account route from the short-term investment limit has been omitted as a consequential change; and
• the following new instruments are added under the Fully Accessible Route (FAR) as ‘specified securities’:
• G-Secs – all new issuances in the 15 (fifteen) year, 30 (thirty) year and 40 (forty) year tenors,
• Sovereign Green Bonds – all new issuances in the 5 (five) year, 7 (seven) year, 10 (ten) year, 15 (fifteen) year, 30 (thirty) year and 40 (forty) year tenors, and
• certain existing securities specified by the RBI.

 

Liberalisation of FPI under Schedule III of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019

Key takeaway: Pursuant to the Ministry of Finance notification dated June 12, 2026 which expanded investor eligibility under Schedule III from NRIs/OCIs to all individual persons resident outside India, this circular provides the operational backbone by authorising AD Category-I banks to open repatriable INR accounts for this expanded investor class and mandates their integration into existing FPI monitoring and limit-tracking systems.

Pursuant to the Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2026, RBI, vide circular dated June 15, 2026, has liberalised the FPI framework under Schedule III of the Foreign Exchange Management (Non-debt Instruments) Rules, 2019 (“NDI Rules”), by permitting all individual persons resident outside India (and not only Non-Resident Indians (“NRIs”) and Overseas Citizen of Indias (“OCIs”)) to invest in equity instruments of listed Indian companies on recognised stock exchanges, subject to enhanced investment limits and applicable conditions. AD Category-I banks are permitted to facilitate such investments by opening repatriable INR accounts and must ensure compliance with existing reporting, monitoring, and limit-tracking frameworks applicable to FPIs.

 

Reserve Bank of India

Foreign Exchange Management (Cross Border Merger) (Amendment) Regulations, 2026

Key takeaway: This amendment aligns the FEMA cross-border merger framework with the evolving Companies Act, 2013 approval architecture. By substituting National Company Law Tribunal with Competent Authority, RBI has ensured that both NCLT-sanctioned and Regional Director-approved fast-track cross-border mergers now enjoy identical FEMA timelines and deemed approval status.

RBI, vide notification dated May 29, 2026, has amended the Foreign Exchange Management (Cross Border Merger) Regulations, 2018. Some of the key amendments are as follows:

• term “Competent Authority” is defined as any authority empowered under the Companies Act, 2013, or any subordinate legislation made thereunder, to approve a scheme of merger or amalgamation; and
• in Regulations 4 (inbound merger), 5 (outbound merger), 7 (miscellaneous) and 9 (deemed approval), the reference to ‘National Company Law Tribunal’ is replaced with ‘Competent Authority’, thereby broadening the scope of approving authorities for cross-border mergers.

 

Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) (Amendment) Regulations, 2026

Key takeaway: The core intent behind this RBI amendment is to operationalise the payment, remittance, and reporting infrastructure required to support the expanded Schedule III investor class.

RBI, vide notification dated June 13, 2026, has amended the Foreign Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 (“Reporting Regulations”). Some of the key amendments are as follows:

• Schedule III is substituted to provide that investments by individuals resident outside India, including NRIs and OCIs, on a repatriation basis must be made through inward remittance from abroad through banking channels or out of funds held in any repatriable deposit account maintained under the Foreign Exchange Management (Deposit) Regulations, 2016 (“Deposit Regulations”). A designated repatriable rupee account is required to be maintained exclusively for investments permitted under the Schedule;
• Schedule III is amended to provide that subscriptions to the National Pension System (“NPS”) by NRIs and OCIs may be made through inward remittance from abroad through banking channels or out of funds held in any repatriable foreign currency account, repatriable rupee account, or NRO account maintained under the Deposit Regulations. Further, sale proceeds of equity instruments may be remitted outside India or credited to the designated rupee account, while proceeds from mutual fund units and NPS investments may be remitted outside India or credited to any account maintained under the Deposit Regulations, at the option of the investor;
• Schedule XI is substituted to provide that payment for purchase or subscription of equity shares of Indian companies listed on international exchanges may be made through banking channels to the foreign currency account of the Indian company maintained under the Foreign Exchange Management (Foreign Currency Accounts by a Person Resident in India) Regulations, 2015, or through inward remittance from abroad or funds held in any repatriable foreign currency or rupee account maintained under the Deposit Regulations. Sale proceeds may be remitted outside India or credited to the permissible holder’s bank account maintained under the Deposit Regulations; and
• Regulation 4(9) of Reporting Regulations is amended to require designated AD Category-I banks to report to RBI, in Form LEC (IFI), the purchase or transfer of equity instruments by an individual person resident outside India, including NRIs and OCIs, on stock exchanges in India.

 

Ministry of Finance

Foreign Exchange Management (Non-debt Instruments) (Second Amendment) Rules, 2026

Key takeaway: The amendments liberalise the foreign investment regime for the insurance sector by permitting up to 100% foreign investment, including portfolio investment, under the automatic route, subject to IRDAI approval and applicable conditions. The changes also streamline sectoral requirements for insurance companies and intermediaries by removing certain operational restrictions, thereby improving ease of doing business and enhancing flexibility for foreign investors seeking opportunities in India’s insurance sector.

Pursuant to the Press Note 1 (2026), Ministry of Finance (“MoF”), vide notification dated May 2, 2026, has amended the NDI Rules. Some of the key amendments are as follows:

• serial number F.8 of Schedule I to the NDI Rules (concerning foreign investment in the insurance sector) has been revised. In line with Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025, the amendment permits up to 100% investment by foreign investors (including portfolio investors) under the automatic route in the paid-up equity capital of Indian insurance companies (except in Life Insurance Corporation of India, which is capped at 20% under the automatic route), subject to approval and verification by the Insurance Regulatory and Development Authority of India (“IRDAI”);
• the sectoral conditions applicable to an Indian insurance company with foreign investment have been aligned with the revised Indian Insurance Companies (Foreign Investment) Rules, 2015 (“FI Rules”) which require Indian insurance companies to have at least 1 (one) among the chairperson of the board, managing director or chief executive officer to be resident Indian citizens. Accordingly, the sectoral condition regarding a majority of directors and key managerial personnel being resident Indian citizens has been omitted. Notably, recent amendments to the FI Rules have also further simplified the foreign investment regime by omitting certain other conditionalities applicable to Indian insurance companies with foreign investment in excess of 49% (i.e., stipulations concerning independent director requirements and requirement to transfer profits to general reserves in case of dividend payouts in certain situations); and
• further, in line with recent amendments to the FI Rules, certain sectoral conditions applicable to an insurance intermediary (with majority foreign shareholding) relating to obtaining prior IRDAI permission for repatriating dividends and stipulations governing payments to foreign promoters or their associated entities and composition of board of directors and key management persons, have been omitted.

 

Foreign Exchange Management (Non-debt Instruments) (Third Amendment) Rules, 2026

Key takeaway: The amendments aim to attract fresh pools of global retail capital into India’s equity markets as part of a broader macroeconomic response to reverse capital outflows and stabilise the Indian currency, by extending portfolio investment access beyond the Indian diaspora to any foreign individual worldwide. The Government is signalling that India’s capital markets are open for business to a far wider investor base whilst maintaining the FDI/FPI regulatory distinction through strict individual thresholds and automatic reclassification mechanisms. The 5-day divestment window with mandatory FDI conversion for non-compliance serves as a self-enforcing guardrail that preserves the portfolio character of these investments without requiring ex-ante regulatory approval.

MoF, vide notification dated June 12, 2026, has amended the Foreign Exchange Management (Non-debt Instruments) Rules, 2019. Some of the key amendments are as follows:

• Chapter V is amended by replacing references to “NRIs or OCIs” with “an individual person resident outside India including NRIs or OCIs”;
• Rule 12(1) is substituted to permit an individual person resident outside India to purchase or sell, on a repatriation basis, equity instruments of a listed Indian company and other securities under Schedule III. Prior Government approval is required where such investment results in transfer of ownership or control to entities or citizens of countries sharing a land border with India, or where the beneficial owner is a citizen of such country;
• Rule 13(1) is amended to permit an individual person resident outside India holding equity instruments or units on a repatriation basis to transfer the same by way of sale or gift to another person resident outside India, subject to applicable Government approval requirements;
• Schedule II is amended to clarify that the total holding of an FPI, including through an investor group, must remain below the prescribed individual limit. Investments of 10% or more are to be treated in accordance with the provisions applicable to foreign direct investment;
• Schedule III is amended to prescribe that the holding of any individual person resident outside India must remain below 10% of the paid-up equity capital of a listed Indian company on a fully diluted basis, while the aggregate holding of all such individuals must not exceed 24%; and
• Schedule III further provides that any breach of the 10% limit must be rectified through divestment within 5 (five) trading days, failing which the entire investment will be treated as foreign direct investment, in which case the investor cannot make any further portfolio investment in the concerned company. The investor must also notify the depositories and the concerned company through the designated AD branch within 7 (seven) trading days of settlement of the trades causing the breach.

 

Department for Promotion of Industry and Internal Trade

Standard operating procedure for processing FDI proposals

Key takeaway: The key intent behind this revised SOP is to operationalise India’s recalibrated approach to foreign investment scrutiny, while maintaining strategic oversight over investments from land border countries (particularly China). The framework introduces procedural clarity and a dedicated approval architecture that distinguishes between reporting-only cases and specified-sector approval cases, thereby reducing ambiguity.

Department for Promotion of Industry and Internal Trade (“DPIIT”), vide circular dated May 4, 2026, has updated the SOP for processing FDI proposals. Accordingly, all proposals for foreign investment requiring Government of India’s approval as per the consolidated FDI Policy dated October 15, 2020, are required to be filed online through the portal.

The SOP also outlines the procedures for closure, rejection, withdrawal, surrender, rectification, and compounding of FDI proposals. It further prescribes special guidelines and timelines for investments from countries sharing a land border with India, requires the Competent Authority to maintain a dedicated FDI cell with a nodal officer not below the rank of Joint Secretary, and mandates periodic review meetings by DPIIT to monitor the timely disposal of FDI proposals.

 

This Newsletter has been prepared by:

Sidharrth Shankar Partner	Vikram Raghani Partner	Bir Bahadur Sachar Partner	Vaishnavi Vyas Senior Associate
Krishna Giri Nair Associate	Ankitaa N Iyer Associate	Rashika Sharda Associate

 

For more details, please contact km@jsalaw.com

 

[1] See Times of India, ” PE-VC investments decline 3% to USD 6.45 billion in Q2 2026″.

[2] See Venture Intelligence Blog, “PE-VC Investments Fall 3% to USD 6.45 B in Q2’26”.