With an aim to make it easier and attractive for foreign investors to invest in Indian capital markets, SEBI will consider on Tuesday wide-ranging changes in the norms governing them, including on their KYC requirements and taxation-related issues.
The proposed measures, including those suggested by a SEBI-appointed committee on rationalisation of investment routes and monitoring of foreign portfolio investments, include a simplified procedure for registration of all kinds of foreign investors and are aimed at attracting greater overseas inflows into Indian markets.
The proposed steps, which would be considered by SEBI at its board meeting, come at a time when the Rupee has weakened against the Dollar. Also, FIIs have been pulling out money from the Indian debt market, which has resulted in the hardening of yields on government bonds.
The committee, headed by former Cabinet Secretary K. M. Chandrasekhar, has also suggested various classes of foreign investors, including FIIs, sub-accounts and qualified foreign investors (QFIs), being merged into a new category to be called ‘Foreign Portfolio Investor (FPI)’.
It has also recommended doing away with prior direct registration of FIIs and sub-accounts with SEBI, while the proposals also call for adopting a risk-based KYC approach in dealing with the overseas investors.
SEBI is of the view that most of the proposals made by this committee are well thought out and can be implemented, while the proposed measures have also been welcomed by the market participants and government departments, a senior official said.
Earlier this month, Finance Minister P. Chidambaram had also termed the recommendations as ‘positive’.
Another key proposal involves single overseas investments of more than 10 per cent in a company being classified as Foreign Direct Investment (FDI) and those less than 10 per cent as foreign portfolio investment.
The recommendations made by the committee, along with SEBI’s additional suggestions, would be forwarded to the government for implementation.
Sources said that the implementations of the proposed measures would require some changes in the provisions of the Prevention of Money Laundering Act, while SEBI has also proposed certain changes to clarify the taxation responsibility under the FPI regime.
As per the current norms for FIIs, the taxation responsibility is on FIIs through banks, while the QFI regime puts the taxation onus on Depository Participants.
There have been concerns that the QFI route has not been a big success because of the taxation responsibility on the Depository Participants and SEBI is proposing to make the FPIs getting this responsibility through banks under the new regime.