Real estate funds seeks to set up NBFC’s

Offshore real estate funds are actively aiming to set up Non Banking Financial Companies (NBFC) to invest in the sector, despite the removal of the new clause in the Foreign Direct Investment (FDI) policy prohibiting the put options. According to Ruchir Sinha at Nishith Desai Associates, the firm is advising several offshore clients on forming realty specific NBFC’s to improve their business conditions. He added that their clients are still receiving notices from the Reserve Bank of India (RBI) on put options.
The main ingredient of the put up option is that under this a promoter buys back the shares of the investors at a pre-determined price at a future date. Generally this is a part of the shareholder’s agreement when investors put their money in unlisted entities. They exit when the entity floats its IPO or Initial Public Offer but if the market conditions are not as good for a share sale then the promoters may buy back the shares to protect the investors.


The Reserve Bank of India (RBI) has maintained the put up options as it was prior to the change in the FDI policy. Sinha added that according to RBI the put up option is a future contract and such contracts can only be traded through a stock exchange and not among shareholders.