The changes recommended by the Sebi panel to ease procedural hurdles for overseas investments into India may make life simpler for new overseas investors but may not make any significant difference to foreign inflows into India.
?The new norms will not revolutionise the way FIIs (foreign institutional investors) invest into India,? said Sandeep Parekh, founder and managing partner, Finsec Law Advisors. ?Having said that, it?s a step in the right direction and may reduce the unnecessary pain investors have to go through at present.?
The Chandrasekhar committee, in its note on Wednesday, had said that the simplification of KYC and account opening norms, would make the ?experience for FPIs of entering into India smoother, resulting in increasing inflows into India?. Foreign Portfolio Investors (FPIs) will be the new category created comprising FIIs, sub-accounts and qualified foreign investors (QFIs).
The committee has recommended that prior direct registration of FIIs and sub-accounts with Sebi should be done away with, and that FPIs should register themselves and transact through Designated Depository Participants (DDPs). Institutional brokers feel this will make it easier for new overseas insitutional participants to come to India. In the past, it could take anywhere between 4-6 weeks for an FII to register. It remains unclear as to whether the registeration time would reduce after the proposed changes.
Doubts also linger on whether the Sebi would be entirely comfortable in going ahead with implementing the changes recommended by the Chandrasekhar panel.
?Sebi would ideally not want to scrap the current requirement of prior registration for all FIIs and sub-accounts,? said a former Sebi official. ?Over the past few years, Sebi has worked to strengthen the procedures to address the sensitive issue of ?ultimate beneficiary?. It would be wrong to make an abrupt change and disturb the system. Our market is driven by overseas money and we need controls that are strong enough and, at the same time, do not act as a roadblock.?
According to Parekh, however, direct registrations are not likely to dilute the disclosure requirements to be made by overseas institutional investors. ?It is possible to seek all the information without prior direct registration. The regulator can still ask for adequate disclosures from all the entities involved,? said Parekh.
Unlike some of the earlier panel reports, which have not been acted upon, finance minister P Chidambaram?s statement on Thursday has bolstered the belief that at least some of the changes recommended by the Chandrasekhar panel may see the light of the day soon. ?I am of the view that we are in favour of the reforms. Our representative on the Sebi?s board will present the government view when the Sebi meets on June 25,? the finance minister said during a press conference in Delhi.
According to Parekh, it is possible to implement the changes recommended by the panel in 2-3 months. ?It can happen provided the Sebi, the RBI and the finance ministry act together,? he said.
FIIs, the main drivers of Indian equities, have put in more than $15 billion into Indian shares in calendar year 2013. India is particularly dependent on foreign inflows on account of its high current account deficit.
