The finance ministry on Tuesday sought to allay fears of foreign investors over an April 10 circular of Securities and Exchange Board of India (Sebi) on beneficial ownership of offshore funds, with economic affairs secretary Subhash Chandra Garg saying the regulator’s directive has no immediate implications.
Asset Managers Roundtable Of India (AMRI), an investor lobby group, warned on Monday that Sebi’s new KYC norms stipulated in the circular, if not tweaked, could lead to as much as $75 billion flowing out of India, hurting the domestic currency and stocks.
Some analysts have said it’s not about disclosure of end beneficiaries but the restrictions the circular imposes on FPIs being managed by non-resident Indians (NRIs) and people of Indian origin (PIO) that is troubling the investors.
The directive will impact both India-dedicated funds set up by NRIs and the funds that are being managed by them, they have said.
However, the secretary said NRIs are already allowed to invest in Indian securities, with a cap of 5% (up to which they can invest in single securities). “If some NRI is a beneficial owner then that has been defined. If you have economic interest (in some securities) and you also manage (them), that is not permissible,” he said, hinting that the curbs are aimed at avoiding conflict of interests.
Garg said Sebi has already extended the circular’s deadline to December for providing details on the beneficial owners—or, the natural persons, who ultimately own or control foreign portfolio investors (FPIs)–and wondered as to why there was much ado about the issue. “There is nothing in operation at the moment, why there is so much ado?”
Sebi has also reportedly said it was “preposterous and highly irresponsible” to claim massive outflows to the extent of $75 billion due to such regulatory requirements. Government officials said Sebi’s circular was meant to bring in transparency in the way such funds are run and put a check on the black money menace.
Stock markets witnessed fall for a fifth straight session Tuesday on sustained capital outflows by foreign funds.
AMRI has claimed that overseas citizens of India (OCIs), PIOs and NRIs managing the $75-billion investment will be disqualified from investing into India, and the funds will have to be withdrawn and liquidated within a short time-frame.
In April, Sebi had asked Category II and III FPIs to provide list of their beneficial owners in a prescribed format within six months before it extended the deadline until December. It had also assured them that an expert panel will address issues arising out of it.