Sebi may relax net worth norms for intermediaries

Mulls merit-based easing of Rs 50-crore net worth criteria for qualified depository participants

In a move which might give a boost to the recently-introduced Qualified Foreign Investor (QFI) route, the market regulator is considering relaxing entry norms for intermediaries. Securities and Exchange Board of India (Sebi) was open to easing the minimum net worth requirement of Rs 50 crore prescribed for qualified depository participants (QDPs) on a case by case basis, people with direct knowledge of the development said.

“The Rs 50-crore net worth eligibility criteria is a little tough on many intermediaries. Sebi has taken into account their concerns and has already allowed exemptions in genuine cases,” said one of these people.

So far, the regulator has given approvals to seven depository participants, including Kotak Mahindra Bank, HSBC, India Infoline, Deutsche Bank, SBI, Societe Generale and Citibank to act as QDPs. However, given the new position adopted by the regulator, more than half a dozen market participants have queued up to start QDPs business, the person added.

According to the original norms, only QDPs with a minimum paid-up capital of Rs 50 crore were allowed to handle the QFI business. Later, on January 25, Sebi amended the guidelines, making Rs 50 crore net worth as eligibility criteria in place of paid-up capital.

QDPs are the main intermediaries for routing the money through the newly approved QFIs route. They are responsible for enrolling the investors conducting know your customer (KYC) activities and filing tax returns. In January, the market regulator issued guidelines for direct entry of QFIs in the Indian stock market. However, the money has not yet started coming through this route.

“A lot of depository participants have paid-up capital in excess of Rs 50 crore but fail to make the cut on the net worth basis,” said an official with a depository. “Maybe the regulator has been giving approvals according to earlier criteria,” he added.

The net worth of QDPs is a critical aspect because that is the only check the regulator had put in to ensure the quality of the intermediaries and their ability to carry out the multitude of responsibilities imposed on them by the regulator under the QFI route.

Although the Rs 50-crore net worth criteria is not a very tough prerequisite, but the losses in the past few years due to tough market conditions have resulted into net worth erosion of many market players. Due to the net worth criteria only a few big players have managed to get the regulator approval for setting up QDPs.

An email seeking comments to Sebi spokesperson on this issue remained unanswered.