In a major relief to foreign funds, a Sebi appointed panel has suggested relaxed FPI norms permitting NRIs, overseas citizens of India and resident Indians to hold non-controlling stakes in FPIs.
The committee headed by RBI deputy governor HR Khan has suggested major relaxations to the controversial April 10 circular issued by Sebi.
Experts said the panel has addressed all the major concerns raised by investors but the issue of identifying high risk jurisdictions is still hanging.
The panel in its interim report said there should not be restriction on NRIs to manage non-investing FPIs or Sebi-registered offshore funds. Non-resident Indians will be allowed to invest as foreign portfolio investors (FPIs) if the single holding is under 25 per cent and group holding is under 50 per cent in a fund.
The panel has recommended that the beneficial ownership (BO) norms mentioned in the circular would only be applicable for KYC purposes, and not for determining the ownership of a fund.
According to experts, the recommendations made by the panel will ease some of the major concerns raised by foreign investors regarding the April circular which would have hit as much as $75 billion of FPI assets in India.
“It is broadly the thinking of the group that the BO (beneficial ownership) criteria should be made applicable only for KYC and not as eligibility criteria for FPIs, including NRI, PIO and RIs,” said the panel.
It also said that the clubbing of limits for foreign portfolio investors should be based on beneficial ownership.
“NRIs, OCIs and RIs can be beneficial owner of an FPI, subject to single NRI/OCI/RI holding is below 25 percent of the asset under management of FPI and aggregate holding is below 50 percent of assets under management,” the report said. It also suggested that there should be no restrictions on PIOs as the concept has also been done away in the FEMA.
Experts feel that though the panel has addressed all the major issues, some operational issues like enhanced KYC for foreign funds will continue to pose challenges. “The regulators should come out with a method to identify high risk jurisdictions because in the interim it would lead to unnecessary speculations,” Riaz Thingna, director at Grant Thornton Advisory.
It is recommended that Sebi and the government of India develop a more evolved criterion for recognising high-risk jurisdiction. These exemptions for NRI, OCI, PIO and RI are only applicable for those countries who are part of International Organization of Securities Commissions, and are not red flagged by the Financial Action Task Force
Amid concerns in some quarters that several foreign funds, including those managed and owned by non-resident Indians (NRIs) and persons of Indian origin (PIOs) could face difficulties in meeting the new norms even within the extended deadline of December, the panel suggested several changes on the basis of inputs from the finance ministry and industry representatives.