HSBC, UBS stop issuing P-Notes as India steps up crackdown

A number of foreign investors, including HSBC and UBS have stopped issuing controversy-ridden PNotes as regulatory and enforcement agencies step up their clampdown on misuse of this once-popular instrument among foreigners to invest in Indian markets. Sebi has shared with the government for further action a list of foreign fund houses that are found to have issued the Offshore Derivative Instruments (ODIs), popularly known as Participatory Notes (PNotes), to Indian nationals, while probe is on in several other suspected cases of NRIs/PIOs. These instruments are not allowed to be issued to Indians, NRIs or Persons of Indian origins.

Besides, another list has been shared of the investors having parked large amounts of money, each worth over USD 100 million, through these instruments. Sebi has stepped up its scrutiny of investors issuing P- Notes, as also those parking their money in Indian markets through this route, amid a stepped-up clampdown on their misuse for round-tripping illicit funds. These instruments used to be very popular at one point of time among foreign investors who did not want

to enter the market directly and used to invest through this route provided by registered FPIs. Consistent tightening of norms, including as per the suggestions of the Supreme Courtappointed Special Investigation Team (SIT) on Black Money has led to a sharp decline in its share -- from 56 per cent about ten years ago to less than 7 per cent of overall foreign portfolio investments in Indian markets currently. There was a drastic decline in the outstanding values of the ODIs from the month of October to December 2016.