No plan to ban participatory notes

The government has ruled out imposing ban on participatory notes, even as market regulator SEBI is trying to bring more transparency in stock markets by encouraging foreign investors to directly register with it.

Participatory-notes (P-Notes) are the instruments issued by foreign institutional investors (FIIs), through which unregistered overseas investors invest in Indian stocks.

"There is no plan to ban participatory botes," a Finance Ministry source said.

He said there are similar instruments in other spheres of stock markets in India and they cannot be banned without any solid ground.

Foreign investors have reduced their use of P-Notes, despite surge in the equity markets.

In August 2009, P-Notes contributed to 15.5 per cent of total FIIs investment compared to 38.6 per cent in January, 2008. In absolute terms, Rs 1.10 lakh crore came through P-Notes against Rs 3.30 lakh crore over the period.

Experts attributed this to market regulator SEBI's decision to encourage foreign investors to register directly

with it to bring more transparency on this front.

Since the information on ultimate beneficiaries of P-Notes is sometimes not known because of multi-layering, the Reserve Bank does not favour these instruments and has sought ban on them.