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SEBI floated a consultation paper on Friday that seeks to allow higher participation of non-resident Indians (NRIs) and Overseas Citizens of India (OCIs) into foreign portfolio investors (FPIs) based out of International Financial Services Centres (IFSCs) in India.
NRIs and OCIs may be allowed to contribute 50 per cent or more to the FPI’s corpus. Such investors have to provide granular details of all entities holding any ownership, economic interest or control in the FPI if the latter holds more than 33 per cent of its Indian equity AUM in a single Indian corporate group or if it (along with its investor group) holds more than ₹25,000 crore of equity AUM in the Indian market.
The contribution of a single NRI or OCI or resident Indian will be below 25 per cent of the total contribution in the corpus of the applicant.
NRIs and OCIs identified as beneficial owners of the FPI will have to provide passport number and OCI number respectively to their designated depository participants.
Boost to GIFT IFSC
SEBI said that IFSCA has a better information sharing mechanism with SEBI compared to other international regulators and will be in a better position to oversee structures having predominant NRI/OCI ownership.
“The relaxation for NRI/OCI investment in FPIs set-up in IFSC will give a big boost to GIFT IFSC as an offshore financial jurisdiction. Such relaxation should also be considered for resident individuals investing in alternative investment funds based out of IFSC and investing in India,” said Yashesh Ashar, partner, Illume Advisory.
There has been an increasing demand for channelling more NRI/OCI investments in the Indian markets through the FPI route. Such entities currently have the option of using the PIS, or portfolio investment scheme route, but this restricts investment through overseas pooled structures.
Restrictions on contribution by NRIs/ OCIs to the FPI corpus increases compliance burden and cost on the FPI. For instance, a redemption request from non-NRI/OCI investors may raise the percentage contribution by NRIs/OCIs in the FPI corpus, necessitating forced redemption or arranging for fresh non-NRI/OCI investments.
Higher NRI and OCI contribution could lead to money laundering, circular trading, and flouting of minimum public shareholding and takeover norms. The dangers of allowing access to such entities were highlighted by the joint committee report (JPC) on the stock market scam presented to the Lok Sabha on December 19, 2002.
“The concerns of market manipulation by NRI/OCI owned entities stated in the JPC report exist even today due to possible proximity of persons of Indian origin with Indian companies/promoters. At the same time, it is recognized that further investments in the Indian securities markets can be facilitated by channelling such investments into the country through FPIs that are professionally run,” the consultation paper said.
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