Page 329 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Corporate Legal Framework

Notes

Case Study FIIs, NRIs can invest in Indian Depository Receipts

oreign Institutional Investors (FIIs) and the Non-resident Indians (NRIs) are allowed
to invest in Indian Depository Receipts, according to the operational guidelines
Fissued by the Reserve Bank of India on Wednesday.
FIIs, including the SEBI approved sub-accounts of the FIIs, registered with SEBI and NRIs
may invest, purchase, hold and transfer IDRs of eligible companies resident outside India
and issued in the Indian capital market, subject to the Foreign Exchange Management
(Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000.

Further, NRIs have been allowed to invest in the IDRs out of funds held in their NRE/
FCNR(B) account, maintained with an authorised dealer/authorised bank, the RBI said.
Foreign companies can issue IDRs through a domestic depository. The RBI guideline will
also permit residents in and outside India to purchase, possess, transfer and redeem IDRs
issued by the foreign companies.
The Central Government had issued the companies IDR rules that are now being
operationalised by SEBI and the RBI through issue of guidelines.
Last month, SEBI had brought out a circular modifying the listing agreement to bring down
the regulatory cost of the IDR issuers from countries that are “signatories of multilateral
memorandum of understanding (MMOU) of International Organisation of Securities
Commissions (IOSCO).”

In its circular, the RBI has said IDRs cannot be redeemed into underlying equity shares
before the expiry of one year from the date of issue.
The RBI has also said that automatic fungibility of IDRs will not be allowed.
“In case of raising of funds through issuance of IDRs by fi nancial/banking companies
having presence in India, either through a branch or subsidiary, the approval of the sectoral
regulator(s) should be obtained before the issuance of IDRs”.
Standard Chartered Bank is awaiting approval from the RBI for an IDR issue.
The proceeds of the issue of IDRs shall be immediately repatriated outside India by the
eligible companies issuing such IDRs. The IDRs issued shall be denominated in Indian
rupees and the proceeds of the issue can be immediately repatriated outside India by the
company.
The Indian investors in IDRs will be regulated under the Foreign Exchange Management
Regulations.
Question
Discuss the regulation of DR in India.

Hint: In India issue of ADR, GDR is regulated by SEBI regulations. The companies issuing
ADRs, GDRs in India should take permission from RBI.
Source: thehindubusinessline.com

14.10 Summary

In this unit, we have discussed two segments of Indian securities market namely, primary
market on issues market and secondary market or stock market.

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