New Delhi: Foreign institutional investors (FIIs) may have to wait a while before they can invest in Indian Depository Receipts (IDRs). The Reserve Bank of India (RBI) has put on hold a proposal mooted by the finance ministry and the Securities and Exchange Board of India (Sebi) seeking to allow FII investment in IDRs, a person privy to the development told ET.
Since the proposal could have foreign exchange implications, the central bank wants that any decision on the issue should be taken only after the uncertainty in the global financial markets ends, the person said.
IDRs are financial instruments similar to global depository receipts (GDRs) and American depository receipts (ADRs). Just as Indian companies raise capital overseas through ADRs and GDRs, the IDRs would allow foreign companies to raise capital in India. Under this route, the foreign company will issue shares to an Indian depository and against these shares the depository would issue receipts to investors in India. All the benefits of the underlying shares would accrue to the depository receipt holders.
At present, the Foreign Exchange Management Act (Fema) specifies that IDRs are to be purchased only by persons resident in India. This rules out participation of FIIs and non-resident Indians in IDRs. RBI would have had to change this provision as a part of the initiative. A proposal to this effect had figured at the last meeting of the high-level co-ordination committee on financial markets (HLCCFM).
HLCCFM is a forum that discusses inter-regulatory issues and has representation from all financial sector regulators. RBI, Sebi and the government are all represented at the committee.
The proposal was a part of the government initiative to provide some impetus to the IDR market, which has failed to takeoff despite repeated efforts to rekindle it. The government had unveiled IDR norms in 2004. The norms were subsequently relaxed in 2006 when the pre-issue paid-up capital was reduced to $50 million for companies seeking to issue IDRs. However, even the relaxation in norms has failed to enthuse any foreign company to float an IDR issue.
ON BACK BURNER
RBI has put on hold a proposal mooted by finance ministry and Sebi seeking to allow FII investment in IDRs
Since the proposal could have forex implications, RBI wants that any decision should be taken after the uncertainty in global financial markets ends
The Foreign Exchange Management Act says that only resident Indians can buy IDRs
