Govt. Allows Bonus Shares in FDI-Prohibited Sectors Without Change in Foreign Holding

Notification No. S.O. 2549(E); Dated: 11.06.2025

In a significant regulatory update, the Central Government has amended the Non-debt Instruments (NDI) Rules, 2019 to bring them in line with the recent clarification issued by the Reserve Bank of India (RBI).

1. RBI Clarification on Bonus Shares – April 7, 2025

Earlier, the RBI, through Press Note No. 2 dated April 7, 2025, had clarified that an Indian company operating in an FDI-prohibited sector is permitted to issue bonus shares to its existing non-resident shareholders, provided that:

• The issuance is made from free reserves.
• The shareholding pattern of non-resident shareholders remains unchanged post-issuance.

This clarification aimed to ensure that such corporate actions do not result in any indirect foreign investment or breach of sectoral caps.

2. Amendment to Non-debt Instruments Rules, 2019

To operationalise the RBI’s clarification, the Central Government has now amended the NDI Rules, 2019, ensuring that the legal framework governing foreign investments aligns with this position. The amendment brings regulatory consistency and removes ambiguity regarding the permissibility of issuing bonus shares in sectors where FDI is restricted.

3. Implication for Indian Companies and Non-Resident Investors

This amendment provides greater clarity and legal certainty for Indian companies in FDI-prohibited sectors intending to undertake bonus issues. It also reassures non-resident investors that their rights can be proportionately maintained without contravening FDI regulations.

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