The NDI Rules regulate equity investments in India by persons resident outside India. The RBI amended the NDI Rules by way of a Notification dated June 11, 2025 (‘Notification’). Prior to this amendment, Indian companies operating in sectors where foreign direct investment is prohibited, were not permitted to issue bonus shares to shareholders who qualified as persons resident outside India. This restriction was in place to ensure that foreign ownership in prohibited sectors to not increase either directly or indirectly.

The Notification, effective from June 11, 2025, permits Indian companies engaged in prohibited sectors to issue bonus shares to their existing foreign resident shareholders, on the condition that the shareholding pattern of such foreign shareholders do not change as a result of the bonus issue. Additionally, any prior bonus issuances to foreign shareholders are grandfathered and deemed to be validly issued.