Participatory Notes rules are strict, robust: Jayant Sinha

The government on Thursday said the current regulatory framework on Participatory Notes (P-Notes) mode of investment into India's capital markets is strict and robust.

"As of now, the kind of reporting requirement and the kind of vigour with which we follow through on the identity of P-Notes holders is actually fairly good and strict in terms of really understanding who is it and whether they are legitimate institutions that are transacting through P-Notes," Minister of State for Finance Jayant Sinha said here.

"Overall, the framework is quite robust," he added, speaking at a global seminar here on sharing of tax information.

He said the Securities and Exchange Board of India (SEBI) has strengthened the know-your-customer (KYC) norms relating to P-Notes.

In July, a Supreme Court appointed Special Investigation Team (SIT) on black money had asked capital markets regulator SEBI to review its regulations on P-Notes and identify their end-users.

P-Notes, mostly used by overseas individual investors, hedge funds and foreign institutions, allow investors to invest in Indian markets through registered foreign institutional investors (FIIs).

These accounted for more than 50 percent of total FII investment in India till a few years ago, but their share has fallen after SEBI tightened disclosure norms and other regulations.

Currently, P-Notes make up around 15-20 percent of the total FII investment in India, as against around 25-40 percent in 2008.

The total value of P-Notes investment in Indian markets increased to Rs.253,875 crore at September-end, from Rs.253,310 crore in the previous month.

SEBI data showed that earlier investment through P-Notes has been declining in the June-August period after touching a seven-year high of Rs.285,000 crore in May. This was the highest investment since February 2008, when the cumulative value stood at Rs.323,000 crore.