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21 Feb 2018

Private Banks & Merchant Bankers (FPIS) to Invest on behalf of Investors/Clients.

SEBI modified Foreign Portfolio Investment Norms

The SEBI, the capital market regulator in India had simplified and combined all portfolio investments under a common regulation in the year 2014 and collectively named them as Foreign Portfolio Investors (FPI). In terms of USD, net investments by FPI during 2016-17 both including in equity and debt was at USD 7,177 million demonstrating deep interest of foreign investors in Indian Capital Market.

  1. The FPI are registered with SEBI through Designated Depository Participants. The major criteria to register FPI are that the applicant should be resident of country where the securities market regulator is signatory to MMOU of IOSCO or should have bilateral MOU with SEBI; the applicant is not a resident of a country identified by FATF; and other KYC norms. In case of banks, it should be a resident of a country whose central bank is a member of Bank for International Settlements. Registered FPI’s are allowed to purchase through stock exchange upto 10 % stake in any Indian listed company.
  1. FPI registration are carried out under three categories based on following criteria:
    1. The Category 1: Mainly government and government related entities.
    2. The Category 2: Appropriately regulated broad based funds; appropriately regulated persons such as banks, advisers, investment bankers; broad based funds which are not appropriately regulated.
    3. The Category 3: Those which do not fall under any of above categories, like individual investors.
  1. Currently private banks and merchant bankers who fall under Category 2 of FPI were allowed to invest only through their proprietary account i.e. only on their own behalf. These private banks and merchant bankers were required to be “appropriately regulated” which means the applicant is regulated or supervised by the securities market regulator or the banking regulator of the concerned foreign jurisdiction.
  1. In order to attract, ease foreign investments in capital markets, various regulatory changes are being introduced by SEBI on a regular basis. One such recent measure by SEBI is “Easing of access norms for investments by Foreign Portfolio Investors”. By this it has allowed eligible private banks and merchant bankers to undertake portfolio investments in India for its investors/clients on their behalf. 
  1. This opportunity is extended to private banks, based on conditions such as:
    1. The details of beneficial owners are to be maintained and to be submitted when the regulator requires.
    2. The banks should not have any secrecy arrangements with clients/investors. It is upon banks to ensure that disclosure regarding beneficial owner is not impeded by any legal requirements /regulatory/confidentiality agreements. The Beneficial owner details to be provided as and when required by Indian Regulators. 

This investment window provides an opportunity to Banks and Merchant Banks to support and provide investment support services in India for their customers. This helps, the foreign individual investors, as they need not go through the hassle of registering with DDP and periodical compliances in India. This is an excellent business opportunity for private banks and merchant banks to extend their portfolio investment support services.

If you wish to know more about this opportunity or any aspects of Indian Capital market laws and regulations and related advisory, please write to our partner Mr. Rajesh Vellakkat (rajesh.vellakkat@foxmandal.in) or to Mr. Sheshashayee NS (sheshashayee.ns@foxmandal.in)

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