FIIs can invest in IDRs: RBI

The Reserve Bank of India (RBI) and finance ministry have cleared the participation of foreign institutional investors (FIIs) in Indian depository receipts (IDRs).

IDRs are Indian counterparts of global depository receipts that enable foreign companies to raise money from the Indian markets.

The proposal has been forwarded to the ministry of corporate affairs for clearance before the decision is notified. Sources added that the ministry of corporate affairs would also consider whether to allow Non-Resident Indians (NRIs) to subscribe to IDRs since neither RBI nor the finance ministry has any objection to the proposal, in principle.

In its original form, persons of Indian origin (PIOs) and resident Indians were permitted to invest in IDRs.

The capital market regulator, Securities and Exchange Board of India (Sebi), has set Rs 50 crore as the minimum amount for issuing IDRs and the minimum investment by retail investors has been set at Rs 2 lakh.

NRIs and FIIs are required to take RBI’s permission before investing in such instruments.

Sources close to the development said, the decision, taken a few weeks ago, could revive interest in IDRs. It is expected to provide an opportunity for foreign companies — with a good track record in their home countries but unable to bargain for good rates in those competitive, developed market — to raise funds from India.

“These instruments, as and when they come into vogue, could provide leeway for companies to shift their borrowings to currencies other than the dollar-dominant syndication markets and a way of avoiding intense currency fluctuations,” said a corporate treasurer.

IDRs were introduced in 2004 but did not take off following delays in RBI clearances and lack of liquidity in the instrument.

Earlier, RBI had expressed reservations about allowing IDRs to be converted into underlying equity shares listed overseas on the lines of American Depository Receipts (ADRs) and Global Depository Receipts (GDRs).