New Sebi panel on foreign investments

Last Updated: Wed, Nov 21, 2012 19:42 hrs

The Securities and Exchange Board of India (Sebi) is putting together a panel of about a dozen senior experts to take a fresh look at the foreign investment framework in the country.

Tentatively named the ‘Committee on rationalisation of investment routes and monitoring for foreign portfolio investments’, it will comprise officials from exchanges, banks, depositories, custodians and tax consultants, according to officials close to the development. The regulator has already written to some top companies in each of these segments, to depute officials with expertise in the area of foreign investments for the panel.

“The board had recently decided to implement the recommendations made by the Sinha panel in 2010. This committee, with experts from different walks, will take into account the operational issues and suggest a way forward for smooth implementation of the proposals,” said an official.

  • 2009: FinMin panel headed by U K Sinha reviews foreign investment
  • July 2010: Report given; kept in cold storage
  • Jan 2012: New route called QFI opened by FinMin
  • Jan-July 2012: Lukewarm response, despite hardsell
  • August: Regime change in North Block
  • October: Sinha panel proposals revived in Sebi board meet
  • November: Sebi committee for implementing Sinha panel recommendations

In its October board meeting, Sebi decided to take steps to implement the recommendations of the Working Group on Foreign Investment in India (WGFII). WGFII, itself an expert group headed by the then UTI MF chief, U K Sinha, who is now the chairman of Securities and Exchange Board of India (Sebi), had given its report in July 2010.

While WGFII had recommended a single-window policy for foreign investments, merging existing routes into one, the finance ministry took the opposite step, in January this year, of opening an additional route, called Qualified Foreign Investors (QFI). This route has not gained much traction despite international marketing and local hardsell by the finance ministry. The changes in North Block seem to have brought the WGFII report back into focus.

The new Sebi panel will help draft guidelines and set the road map for implementation of the various proposals made by WGFII. It had recommended dissolution of various categories of investors such as FDI, FII, FVCI and NRI into a single window, called QFI (not to be confused with the current QFI), for portfolio investment in India.

The board meeting agenda published by Sebi showed it had received suggestions to look into regulations governing each of the investment modes, to make these seamless “while preserving precautionary features from the risk management perspective”.

The report had laid down guidelines for uniform treatment, recommending not to distinguish between foreign investors. Having a single window for portfolio investment in the country would bring more transparency and simplify the process for foreign investors, it said.

The committee had argued that having multiple classes was causing a lot of regulatory overlap and also creating uncertainty among foreign investors. While foreign direct investment (FDI) falls under the department of industrial policy and promotion, FIIs and FVCI investments were regulated by Sebi. The Reserve Bank of India also monitors all these flows and limits, as they have implications on forex reserves.

Market experts say bringing all the categories under a single umbrella could pose operational challenges and could clash with regulatory requirements like Know Your Customer and investment limits.

For instance, a separate limit of $1 billion has been created for QFI investment in corporate debt securities and debt schemes of Indian mutual funds. QFIs have been allowed to invest in MF debt schemes which invest in infrastructure debt up to a total ceiling of $3 billion, out of the total long-term corporate infrastructure limits of $25 billion.

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