With an aim to attract a larger number of foreign
investors to Indian capital markets, SEBI on Tuesday approved
wide-ranging changes in the way they operate here and made their
registration and compliance requirements much simpler and easier.
The SEBI board also approved merging different classes of investors
such as FIIs, their Sub Accounts and Qualified Foreign Investors (QFIs)
into a new category, Foreign Portfolio Investors (FPIs), to put in place
a simplified and uniform set of entry norms for them.
The decisions were taken after a discussion on a report of the
‘Committee on Rationalisation of Investment Routes and Monitoring of
Foreign Portfolio Investments’ under the Chairmanship of former Cabinet
Secretary K M Chandrasekhar.
“While accepting the
recommendations of the committee, the Board decided that the
recommendations concerning SEBI would be implemented by SEBI and it
would refer the other recommendations to Government of India for
implementation,” the regulator said in a statement after the board
meeting here today.
Among the measures approved on
Tuesday, any portfolio investments would be defined as investment by any
single investor or investor group, which shall not exceed 10 per cent
of the equity of an Indian company.
“Any investment beyond the threshold of 10 per cent shall be considered as Foreign Direct Investment (FDI),” SEBI said.
These measures come at a time when the rupee has weakened considerably
against the dollar and recently hit its all-time low levels of nearly 60
to a dollar. Also, FIIs have been pulling out money from the Indian
debt market, which has resulted in the hardening of yields on government
bonds.
In order to make the entry norms easier,
SEBI has also approved doing away with the current practice of FIIs and
their sub-accounts requiring a prior direct registration of the
regulator to operate in Indian markets.
Besides, SEBI would adopt a risk-based KYC (Know Your Client) approach in dealing with the overseas investors.
Accordingly, the FPIs would be categorised into three categories —
low-risk (for multi-lateral agencies, government and other sovereign
entities), moderate risk (for banks, asset management companies,
investment trusts, insurers, pension funds and university funds) and
high-risk (all the FPIs not included in the first two categories).
The third-category FPIs would not be allowed to issue Participatory Notes.
The KYC requirements would be simplest for the first category and most stringent for the third class.
The
requirement for submission of personal identification documents of
designated officials of the FPIs would also be done away with for the
first two categories.
SEBI was of the view that most
of the proposals made by this committee were well thought out and they
have also been welcomed by the market entities and government
departments.
Earlier this month, Finance Minister P Chidambaram had also termed the recommendations as ‘positive’
Sources
said that implementation of the proposed measures would require some
changes in the provisions of the Prevention of Money Laundering Act,
while SEBI has also proposed certain changes to clarify the taxation
responsibility under the FPI regime.
As per the
current norms for FIIs, the taxation responsibility is on FIIs through
banks, while the QFI regime puts the taxation onus on Depository
Participants.
There have been concerns that the QFI
route has not been a big success because of the taxation responsibility
on the Depository Participants and therefore SEBI wants to make the FPIs
getting this responsibility through banks under the new regime
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