NRI-FPI investments merger on ‘long route’

‘Various regulators need to deliberate’

In her maiden Union Budget in July, Finance Minister Nirmala Sitharaman, announced various capital market initiatives including a higher public holding in all listed companies and merger of the investment routes for foreign portfolio investors (FPIs) and non-resident Indians (NRIs).

However, implementation of the proposals is likely to take a long time due to the large number of stakeholders involved and also possible concerns that could be raised by the various regulators involved in executing the government decision.

While the Securities and Exchange Board of India (SEBI) had already expressed its reservations on raising the minimum public holding to 35% – as proposed in the Budget – from the current stipulated 25%, it has now emerged that the proposed merger of the NRI-FPI route would also be a long-drawn process since various modalities need to be worked out between the capital markets regulator and the Reserve Bank of India (RBI), along with the Department of Economic Affairs (DEA).

Convergence of trio

“The proposal requires deliberations between DEA, RBI and SEBI to work out the modalities. As and when these are finalised, the necessary action, as may be required to be taken by SEBI, would be taken separately in due course,” said a SEBI paper that was presented to the board of the regulatory body. Experts believe that while the merger of the NRI and FPI investment route would make the regulatory framework more investor-friendly, it may require the RBI to part with the Portfolio Investment Scheme (PIS) regulations and hand them over to the markets regulator, which could delay the implementation.

“No regulator likes to part with its jurisdiction or subjects that are under its purview,” a lawyer specialising in securities market regulations said.

“If the two regulators can sit together and work out the transition seamlessly, then it can be achieved, but it is easier said than done,” he added, wishing not to be named.

Ms. Sitharaman, while presenting the Union Budget, proposed merging the NRI-Portfolio Investment Scheme route with the Foreign Portfolio Investment route to “provide NRIs with seamless access to Indian equities.”

‘No’ to raising float

The budgetary proposal of increasing public float in all listed entities to 35% has already met with some objections by the capital markets watchdog.

Addressing the media on August 21, SEBI chairman Ajay Tyagi said that there were many issues, including the implications, that needed to be examined before deciding to increase the public float.

Almost half of the listed, government-owned entities did not even meet the current requirement of 25% public holding and had been given time till August 2020 to comply, he added.

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