FPIs to get registration within 10 days; stake capped at 10 per cent

Making it easier for overseas entities to invest in Indian markets, market watchdog Securities and Exchange Board of India (Sebi) has proposed grant of registration to them within 10 days of application under the new foreign portfolio investor (FPI) regime.

The FPIs would be allowed to invest across a host of the capital market segments, including shares, debentures, warrants, mutual funds, collective investment schemes, derivatives, treasury bills and government securities.

Besides, they can also invest in commercial papers, security receipts of asset reconstruction companies, perpetual debt instruments, non-convertible debentures, infrastructure debt funds and Indian depository receipts.

However, an FPI can hold a maximum of 10 per cent equity shares in a company, subject to the applicable sectoral caps.

Under the proposed FPI regulations, which were approved by Sebi's board on Friday and would be notified soon, various investor classes like foreign institutional investors (FIIs) and qualified foreign investors (QFIs) would be clubbed into one single category to be known as FPIs.

To make it easier for FPIs to invest in Indian markets, the new norms also provide for a permanent registration to them, while Sebi has also exempted the lowest-risk foreign investors (such as government entities, sovereign funds and multilateral agencies) from any registration fees.

The new norms come at a time when concerns are being raised about flight of overseas funds away from Indian markets, which was known as among the most attractive investment destinations across the world till a few years ago.

The regulations governing foreign investors have been streamlined to make Indian market a more attractive investment destination and include easier entry norms and cost-effective operational framework for the foreign entities.

As per the draft FPI Regulations, 2013, the FPIs would need to apply for registration through Designated Depository Participants (DDPs), which would need to dispose of the application within ten days of its receipt. In case of additional information being sought for the registration, the application would be required to be disposed of within 10 days of such details being furnished.

The applicants can approach Sebi for any grievance with regard to their application, while they would be required to be given a "reasonable opportunity" to remove any deficiency found in their application before it being rejected. An applicant can apply to Sebi for reconsideration within 30 days of its application being rejected.

The draft norms also stipulate that FPIs would need to transact in securities only through registered stock brokers, except for transactions in securities governed by RBI regulations (such as government bonds), open offers, buyback or delisting offers and divestment of shares.

To ring-fence the new regulations from possible misuse, the FPIs would need to be from countries that are member of global bodies like Financial Action Task Force (FATF), International Organisation of Securities Commissions (IOSCO). Besides, the entities from any country against which bodies like FATF have issued warning for AML/CFT (anti money laundering and combating the financing of terrorism) deficiencies would not be allowed to register as FPIs.

As per the draft regulations, FPIs would need to inform Sebi about any penalty, pending litigations or proceedings or investigations for which action may have been taken or can be taken by an overseas regulator against it. The FPIs would also need to obtain separate and distinct permanent account number (PAN) from the Income Tax Department.

In case the same set of ultimate beneficial owners invest through multiple entities, all such entities would be treated as part of same group and their investments would be clubbed together for the purpose of 10 per cent cap. They would also need to maintain proper books of accounts and records, while entities having opaque structures to hide identity of beneficial owners would not be allowed to register as FPIs.

Market regulator Sebi can also order inspections on suo motu basis or upon receipt of any complaint, to ensure that propers accounts and records, including telephone records and electronic records and documents, are being maintained, or to ensure compliance with the applicable norms.

The Sebi would also be entitled to recover from the concerned entity the expenses incurred for the purposes of inspections and investigations.