Changes made by India’s Securities and Exchange Board (SEBI) for NRIs and OCIs

Source: The post changes made by India’s Securities and Exchange Board (SEBI) for NRIs and OCIs has been created, based on the article “Encouraging investment: New rules aim to improve NRI participation” published in “Business standard” on 6th May 2024.

UPSC Syllabus Topic: GS Paper 3-economy-mobilisation of resources

News: The article discusses changes made by India’s Securities and Exchange Board (SEBI) to allow non-resident Indians (NRIs) and overseas citizens of India (OCIs) to invest more in Indian equities through the Foreign Portfolio Investment (FPI) route. New rules increase investment limits and require detailed information about investors to ensure transparency and prevent misuse. Changes made by India’s Securities and Exchange Board (SEBI) for NRIs and OCIs

What changes have been made by India’s Securities and Exchange Board for NRIs and OCIs?

Raised Investment Caps: SEBI has increased the investment limits for NRIs and OCIs in FPIs from a collective 50% to 100% of the corpus. Previously, individual limits were capped at 25%.

Investment Through Controlled Firms: NRIs and OCIs can now invest up to 100% of an FPI either directly or through entities they control. This expands opportunities for their involvement in Indian equities.

Enhanced KYC Requirements: All FPIs must provide the PAN and KYC details of each investor to depositories. If PAN and KYC details are missing, enhanced limits still apply, but only if the FPI’s investment manager is linked to a SEBI-registered mutual fund or an RBI-regulated entity.

Stricter Disclosure Rules: If FPIs hold over 33% of their assets in one Indian company or more than ₹25,000 crore in total, they must provide detailed investor information. This prevents round-tripping and hidden investments by promoters.

What issues arise from the new rules?

Aadhaar Verification Challenges: The new KYC norms require Aadhaar verification, which is problematic for many NRIs and OCIs who do not have an Aadhaar or an active Indian mobile number. This can hinder their ability to comply with KYC requirements.

Potential Reduction in Investment: Although the intention is to increase transparency, the Aadhaar requirement could discourage NRIs and OCIs from investing through this route, especially since many invest via mutual funds where similar restrictions might be less stringent.

Question for practice:

Discuss the impact of the SEBI new rules on non-resident Indians (NRIs) and overseas citizens of India (OCIs) regarding their investment in Indian equities through the Foreign Portfolio Investment (FPI) route.