The Securities and Exchange Board of India (Sebi) on Wednesday simplified and rationalised the rules for foreign portfolio investors (FPIs) as it did away with the broad-based eligibility criterion for institutional FPIs and permitted central banks of other countries to be eligible for FPIs.
The regulator also hinted that it is not in favour of increasing the minimum public shareholding to 35% from the present 25%, as announced by the finance minister Nirmala Sitharaman in the Union Budget 2019 last month, and has communicated its view to the finance ministry.
Sebi chairman Ajay Tyagi in a press conference on Wednesday said, “There are some aspects which need to be further examined like what is the right level to mandate it. If it goes to a higher level on its own, it is always welcome. On an average basis, the public shareholding is 50%. But on the mandate part, we have to see the global picture in other countries where it is mandated beyond 25%.”
THE BOARD MEET
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- Offshore funds of MFs can invest in the country after registration as FPIs
- Central banks that are not members of the BIS eligible for registration as FPI
- FPIs shall be permitted for off-market transfer of unlisted, suspended or illiquid securities
- Issuance and subscription norms of offshore derivative instruments rationalised
- Regulations concerning credit rating agencies amended
- Nod to changes to the norms prohibiting insider trading
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He said the other issue is with the public sector undertakings as 45% of PSUs don’t even meet the 25% requirement and they have been given time till August 2020 to achieve it, he said, adding, “Also, what would be the long-term and short-term implication of it. Besides, the IPO market is also not doing very well. So all these need to be examined.”
On the FPI issue, Sebi approved several recommendations made by the H R Khan Committee for “easing the operational constraints and compliance requirements”. Around 57 circulars and 183 FAQs pertaining to FPIs issued over the years have been merged into new regulations and a single circular.
The decision came at a time when the domestic market has been witnessing a steady outflow of foreign funds since July.
The regulator decided to do away with broad-based eligibility criteria for FPIs. It needs a minimum of 200 investors for a fund to be broad-based. Sebi said the registration process for FPIs will be expedited, and they will re-categorised into two categories instead of three at present.
“Considering that the central banks are relatively long term, low-risk investors directly/ indirectly managed by the government, the central banks that are not the members of BIS (Bank for International Settlement) shall also be eligible for FPI registration,” it said.
FPIs shall also be permitted for off-market transfer of securities which are unlisted, suspended or illiquid, to a domestic or foreign investor. Offshore funds floated by domestic mutual funds have been permitted to invest in India after obtaining registration as FPI, and the requirements for issuance and subscription of offshore derivative instrumentshave been rationalised.
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