NRIs likely to be allowed to invest through new route

Move aimed to attract more investors and kick-start qualified foreign investor framework

The Securities and Exchange Board of India (Sebi) is planning to make clarifications in the Qualified Foreign Investor (QFI) framework that will enable non-resident Indians (NRIs) to make investments, according to people familiar with the development.

This will be an additional avenue available for the Indian diaspora. “The idea is to tap new NRIs who may be looking at investing in Indian stock markets. However, if those who already have investments through existing provisions want to shift to the QFI route, they may have to close existing accounts,” said an official. The clarification would be part of a broader document that aimed to make the provisions easier to understand and more investor-friendly, the official added.

Though it has been nearly five months since the route was thrown open, the first QFI is yet to be registered. While there is a lack of awareness among potential investors, which the government is planning to address through roadshows, the choppy global market conditions have also played spoilsport. However, the government and the regulator are both keen to make this work. As part of these efforts, Sebi is also expected to clear the air on investments from Gulf Cooperation Council (GCC) nations.

DULL RESPONSE SO FAR

* It’s been nearly five months since the route was thrown open but the first QFI is yet to be registered

* A lack of awareness among potential investors and choppy market conditions to blame

* Sebi keen to tap new NRI investors; those who already have investments may have to close existing accounts to shift to QFI route

According to the QFI framework announced by the finance ministry in January, only investors from FATF-compliant nations were allowed to invest through this route. The Financial Action Task Force (FATF) is an inter-governmental body established to combat money-laundering, terrorist financing and other such threats to the international financial system.

Though the GCC itself is a member of FATF, the six member-countries of GCC — UAE, Bahrain, Oman, Saudi Arabia, Qatar and Kuwait — are not, leading to confusion over their participation.

Sebi’s clarification permitting QFIs from these countries, which are also home to a huge NRI population, will take the total number of permitted countries to 40.

Naresh Makhijani, partner, KPMG, said NRIs who already have investments may not find the proposition attractive. “They may grant an okay for NRIs to invest through the QFI route by asking them to liquidate their positions first. But, the question is in a falling market who would want to sell their shares? It may work if they allow them to transfer their shares or allow them to hold them till the time they liquidate.” The clarifications will significantly expand the scope of the QFI framework, the newest route opened to foreign investors. The route announced by the finance ministry on January 1, 2012, allows foreigners to invest directly in Indian shares.

However, concerns over taxation and the responsibility of qualified depository participants (QDPs) has led to some teething issues, say experts. “While QDPs have made representations expressing their unwillingness to take responsibility for investors’ tax liabilities, the authorities are unlikely to give any relaxation on this count. They want QDPs to function as first-level regulators for the framework,” a senior official with one of the intermediaries said. Sebi is also likely to simplify the rules governing Know Your Customer norms for QFIs. The intermediaries had raised issues about the in-person verification clause in the KYC.