The Reserve Bank of India (RBI) plans to permit Foreign Institutional Investors (FIIs) registered with market regulator SEBI and sub-accounts of FIIs to short sell, lend and borrow equity shares of India companies from February 1, 2008.

However, the entire FII short selling, lending and borrowing mechanism will be subject to the current FDI policy, which allows FDI ranging from 26% to 100% across different sectors.

RBI said in a notification on its web site that the short selling of equity shares by FIIs shall not be permitted for equity shares that are in the ban list and /or caution list of Central Bank.

The borrowing of equity shares by FIIs should only be for the purpose of delivery into short sale. The margin / collateral should be maintained by FIIs only in the form of cash, and no interest should be paid to the FII on such margin/collateral, it added.

The RBI also said that the designated custodian banks should separately report all transactions pertaining to short selling of equity shares and lending & borrowing of equity shares by FIIs on daily basis with a suitable remark (short sold / lent / borrowed equity shares) for the purpose of monitoring by the RBI.