Sebi may soon suggest a merger of foreign portfolio investment

A Sebi panel may soon suggest a merger of foreign portfolio investment and NRI/OCI routes to bring in a single regime for foreign investors and regulate NRI fund inflows, senior officials said.

Besides, the panel may suggest to the capital markets regulator to clarify suitable actions that FPIs need to take for divestment or re-classification of holdings as per the FDI limits after consultation with the Reserve Bank, they said.

Further, it is likely to suggest Sebi to consult the government to evolve more objective criteria for defining high-risk jurisdictions.

The panel headed by former RBI Deputy Governor H R Khan, which is reviewing FPI regulations, may soon suggest these measures.

"The panel is examining whether any recommendation to merge the FPI and NRI/OCI (Overseas Citizens of India) routes of investment can be made to the government and the Reserve Bank," the official said.

Under the Portfolio Investment Scheme, NRIs can directly invest in Indian firms and buy equity stocks and mutual funds among others. NRI investments are controlled by foreign exchange management act and follow Sebi regulations.

The move is aimed at helping Sebi in regulating and maintaining reporting of NRIs (Non-Resident Indians), besides assisting NRIs to invest through FPI in a regulated regime.

Last month, the panel had suggested changes on several contentious proposals and more time for compliance bringing relief to foreign investors worried over new KYC and beneficiary ownership norms.

It had favoured doing away with additional KYC documentation requirements for beneficial owners in case of government-related FPIs.

Besides, the panel had suggested giving six months to FPIs for compliance to new rules, after they are finalised, while the non-compliant investors can be given further 180 days to wind down their existing positions.

The markets watchdog last month revised KYC norms for foreign portfolio investors, wherein resident, as well as non-resident Indians, have been permitted to hold a non-controlling stake in such entities, based on the Khan panel's suggestions.

NRIs, OCIs and RIs (Resident Indians) have been permitted to hold the non-controlling stake in FPIs. There would also be no restriction on them to manage non-investing FPIs Sebi-registered offshore funds as well as registered investment managers, according to the regulator.

These entities would be allowed to be constituents of FPIs subject to certain conditions. If single and aggregate NRI/OCI/RI holding is below 25 per cent and 50 per cent, respectively, of the assets under management in the FPI, then such entities would be permitted to be constituents of the FPI.

(With inputs from agencies.)