In a bid to facilitate eligible companies outside India to issue Indian depository receipts (IDRs) through a domestic depository and permit persons residing in India and abroad to purchase, possess, transfer and redeem IDRs, the Reserve Bank of India (RBI) has decided to operationalise the IDR rules, notified by the Centre, as amended from time to time, with immediate effect. Accordingly, eligible companies outside India may issue IDRs through a domestic depository. The permission has been granted subject to compliance with the Companies (Issue of Depository Receipts) Rules, 2004, and subsequent amendments made, besides Sebi guidelines, 2000, as amended from time to time.

The RBI has said the automatic fungibility of IDRs is not permitted and that IDRs shall not be redeemable into underlying equity shares before the expiry of one-year period from the date of issue of the IDRs.

Further, NRIs are allowed to invest in the IDRs out of funds held in their NRE or FCNR account, maintained with an authorised dealer or bank. At the time of redemption or conversion of IDRs into underlying shares, the Indian holders of IDRs shall comply with the provisions of the Foreign Exchange Management Regulations, 2004.

Accordingly, listed Indian companies may either sell or continue to hold the underlying shares. Indian mutual funds, registered with Sebi may either sell or continue to hold the underlying shares. Other persons residing in India, including resident individuals, are allowed to hold the underlying shares only for the purpose of sale within a period of 30 days from the date of conversion of the IDRs into underlying shares. In case of raising of funds through issuance of IDRs by financial or banking companies having presence in India, either through a branch or subsidiary, the approval of the sectoral regulators should be obtained before the issuance of IDRs, the RBI said.

Foreign institutional investors (FIIs), including Sebi-approved sub-accounts of the FIIs, registered with Sebi and non-resident Indians (NRIs), may also invest, purchase, hold and transfer IDRs of eligible companies? resident outside India and issued in the Indian capital market, subject to the Foreign Exchange Management Regulations, 2000.

The Fema provisions shall not apply to the holding of the underlying shares, on redemption of IDRs by the FIIs, including Sebi-approved sub-accounts of the FIIs and NRIs, said the RBI.

“The proceeds of the issue of IDRs shall be immediately repatriated outside India by the eligible companies issuing such IDRs. The IDRs issued shall be denominated in Indian rupees,” the central bank said.

An investment banker noted that there will be a reasonable inflow of IDRs into India. “International companies listed in India or those who have their business in India and use it for local acquisitions or finance local operations, will come forward to raise funds through IDRs,” he said.