Equity Investments

SEBI looks at allowing NRIs to invest through FPI route after KYC compliance: Report

Markets regulator SEBI is looking to include non-resident Indians (NRIs) in the foreign portfolio investors category after they comply with specific Know Your Client (KYC) norms, reported Business Standard quoting sources.

SEBI may allow NRIs, who meet these specific KYC norms, under category-II and III of FPIs to invest in the country depending on the nature of the fund. The Securities and Exchange Board of India (SEBI) has reportedly written to the central government seeking their opinion on the same.

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The move may open way a new source of foreign inflows in the country. According to the SEBI (Foreign Portfolio Investors) Regulations, 2014 (FPI Regulations), NRIs are not allowed to register as FPIs. They can only act as investment managers for other FPIs.

FPIs have invested more than $450 billion in India. Out of this, $75 billion is managed by Overseas Citizens of India (OCIs), Persons of Indian Origin (PIOs), Non-Resident Indians (NRIs) and Resident Institutions & Individuals (RIs).

The proposal was discussed by the SEBI-appointed HR Khan committee while mulling ways to ease foreign portfolio investment (FPI) rules. The committee was examining possible recommendations to the central government and the Reserve Bank of India (RBI), who administer the NRI investments flowing into the country under the Foreign Exchange Management Act (FEMA).

“Easing the investment norms for NRIs has been a long-standing demand since it has potential to attract impressive flows into Indian markets. The current regulatory framework is not favourable for NRI investment. The category-III FPI route anyway allows several unregulated entities to invest in India. Hence, even if the NRI investment is coming from an institution like a family trust, it could be allowed to be a category-III FPI,” a source told the paper.

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India receives $10-15 billion as NRI remittances every year, but the total assets owned by NRI investors in Indian equities are less than half a billion dollars, according to SEBI data.

SEBI’s move comes at a time when rupee has fallen by around 13 percent against the dollar this year. The rupee crashed below the 72-mark to end at a lifetime low of 72.45 on September 10 against the US dollar on growing fears of contagion from an emerging-market rout and escalation of a global trade war.

Heavy speculative dollar demand along with panic among importers sent the domestic currency tumbling by a sharp 94 paise to hit a historic low of 72.67 in mid-morning trade on Monday, triggering the central bank intervention to defend the currency.

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Recently, the markets regulator faced criticism over its April 10 circular, asking FPIs to comply with KYC norms by December 31, 2018. Citing a threat to $75-billion worth investments by foreign portfolio investors (FPIs) into India, an FPI body AMRI had sought SEBI’s immediate intervention over this circular.

SEBI had responded to the letter, saying, “It is preposterous and highly irresponsible to claim that $75 billion of FPI investment will move out of the country because of SEBI’s circular issued in April 2018.”

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