According to an official press release, the provision will be applicable for only those activities which are advisory or consultancy in nature, irrespective of the foreign equity participation level.

The provision would be applicable to the permitted NBFC activities for foreign equity investment which includes investment advisory services, financial consultancy, credit reference agencies, credit rating agencies, forex broking and money changing business.

Under the guidelines of foreign equity investment in NBFCs issued on March 21, 1997 and amended on October 16, 1998, foreign investment proposal for purely financial consultancy services were not subjected to the capitalisation norms as applicable to the NBFCs subject to certain conditions.

The government hasalso allowed foreign held companies which had FIPB approval for undertaking specific activities on their own, prior to the issue of NBFC guidelines, to undertake such specific activities confined to rendering support and facilities to only its downstream subsidiaries/JVs on an `arm's length basis' with the option of charging fees for the same.

The decision has been taken keeping in view the cases relating to services to the subsidiaries by foreign owned holding companies, who had earlier been permitted to undertake specific activities on their own prior to the issue of guidelines. These companies, undertaking specific activities with domestic participation through downstream subsidiaries had sought permission from the government to charge fees for providing services for the step down subsidiaries.

Under the guidelines of foreign equity investments in NBFCs, 100 per cent foreign-owned NBFCs would act as a holding company aand specific activities would be undertaken by step-down subsidiaries with minimum 25per cent domestic equity.