RBI, govt differ on identity of PN holders

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The government and the Reserve Bank of India (RBI) have different takes on participatory notes (PNs), through which the unregistered foreign entities enter Indian stock market, according to the Committee on the Financial Sector Assessment (CFSA).

“While the government believes that the final beneficiary of PNs could be known, RBI is of the view that it is difficult to identify the ultimate holders of these instruments,” CFSA said in its recent report.

“The Reserve Bank’s concern is that as PNs are tradable instruments overseas, this could lead to multi-layering, which will make it difficult to identify the ultimate holders of PNs,” according to the committee, chaired by the RBI Deputy Governor Rakesh Mohan. The central bank is also of the view that the transactions of foreign institutional investors (FIIs) with the PNs are outside the real-time surveillance mechanism of market regulator, the report said.

The government believes that FIIs maintain records of the entity they issue PNs.