Sebi panel sweetens deal for FPIs
ASecurities and Exchange Board of India (Sebi)-appointed experts group on Saturday made a slew of recommendations which are likely to soothe the nerve of foreign portfolio investors (FPIs). The HR Khan-led committee on easing access norms for overseas investors has recommended significant relaxations to the controversial April 10 circular issued by the capital markets regulator.
In an interim report, the committee has proposed allowing non-resident Indians (NRIs) to hold non-controlling stake in foreign funds. Further, it has said people of Indian origin (PIOs) should be exempted from the ownership restrictions.
The move comes as a relief to FPIs, as several overseas investors have expressed concerns about the April 10 circular.
More importantly, 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.
Experts said the recommendations made by the Khan panel would help assuage most of the concerns raised by FPIs.
The measures come amid a backlash from overseas investors, who said the applicability of the circular would hit as much as $75 billion of FPI assets in India.
“There were mainly two concerns. The circular would have required NRIs, PIOs and Indian fund managers to unwind and discontinue investing as FPI even if the money managed of foreign investors. The second concern was the aggregation of FPI limits in case of common beneficial owners in a situation where it was determined based on senior management officer (SMO) even if there was no common ownership. The recommendation of the committee addresses both these issues,” said Tushar Sachade, partner, financial services, PwC India.
The circular had said the end beneficial owner (BO) of a fund would be determined both by ownership as well as ‘control’.
This had caused concerns that all the funds managed by a single manager could be clubbed for FPI limit calculation purposes. Also, overseas funds managed by NRIs or PIOs would have been rendered ineligible.
“The committee recommendation that the circular would be applied for KYC purposes only is a huge relief,” said an foreign fund manager.
Any entity or person who happens to be a BO according to the new rules will not be subject to any investment restrictions but will be required to provide additional KYC.