Role of custodians turns vital as new norms kick in

With a new framework for foreign investors being implemented by the government, the role of securities custodians is becoming wider and more important.

Under the recently introduced Qualified Foreign Investor (QFI) framework, custodians will play a pivotal role as Qualified Depository participants (QDPs).

Many major foreign custodians such as Citibank, Deutsche Bank, Standard Chartered Bank and HSBC have registered themselves with the equity market regulator Securities and Exchange Board of India (Sebi) as QDPs.

ICICI Bank recently (in May) got Sebi approval to operate as a QDP.

According to estimates given by the QDPs to the Union finance ministry, the QFI route could witness $20-25 billion inflows on the pessimistic side and $80-90 billion on the optimistic side in the next two years.

QFIs, which include foreign individuals, non-resident Indians (NRIs) and groups of such people, are allowed to invest in several Indian instruments such as stocks, corporate bonds and mutual fund units.

In 2010, ICICI Bank’s rival and India’s largest lender, State Bank of India (SBI), also got into a partnership with French bank Societe Generale for its custodial services venture. The latter holds 35 per cent stake in the venture, while SBI holds the remaining.