Market regulator Sebi bats for NRIs, OCIs investments in IFSC FPIs

The Securities and Exchange Board of India (Sebi) has proposed a framework to enable higher investments from Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) through Foreign Portfolio Investors (FPIs) via International Financial Services Centers (IFSC).

Currently, a single NRI and OCI cannot contribute more than 25 per cent of the total corpus of an FPI. Additionally, the combined contribution from NRIs and OCIs cannot exceed 50 per cent.

The market regulator is considering allowing the aggregate contribution from NRIs and OCIs to go beyond 50 per cent of the FPI corpus, but only if the FPI is based out of an IFSC and regulated by the IFSC Authority. GIFT city in Gujarat is India's first IFSC.

Although risks of manipulation through such channels do exist, Sebi believes that, with IFSCA acting as a domestic regulator, the onboarding, know-your-customer (KYC), and verification of Beneficial Owners (BOs) processes will be largely similar to those conducted by Indian intermediaries.

“It is, therefore, felt that compared to other international regulators, IFSC shall have better information-sharing mechanisms with Sebi and shall be in a better position to oversee structures having predominant NRI/OCI ownership, with more effective monitoring of the quality of capital flows,” Sebi said in a consultation paper released on Friday.

For FPIs registered in IFSCA, detailed information from NRIs and OCIs will be required if the FPI’s exposure is 33 per cent or more in a single corporate group.

For onshore FPIs, Sebi mandates that those with over 50 per cent exposure in a single corporate group or equity holdings of over Rs 25,000 crore in Indian markets must disclose detailed information about BOs and economic interest holders.

Sebi has invited comments on the recommendations, and the deadline for submission is September 10.