The regulatory obstacles of the banks of the small foreign stakes in the listed kos

MUMBAI: Foreign investors plans to check water by buying small innings through -market deals in Indian companies listed, in which banks have thrown a rule book.

Following the harsh interpretation of the law, at least half a dozen big private and MNC banks have told such SH -Fashor investors that they can keep themselves less than 10% of the companies listed only after registering themselves as foreign portfolio investors (FPI) with the Securities and Exchange Board India (SEBI).

Although the proposed shares are not in the stock exchange, the banks adopted such a stance have blocked a few inbound investments, but planned as a secondary -fuff -market trade and preferential allocation.

It is from that understanding that more than 10% of foreign holdings will be classified as ‘FDI’ while less than 10% of equity interests will be regarded as ‘foreign portfolio investment’.

“This issue is recently coming to multiple deals at the time of investment. FDI and FPI are two different investment ways. In my view, the investor should not force the investor to change the investment category,” will not be supported by the current structure and business objective, “Law firm Khetan and Co.

Many (non-FPI) investors choose single-digit holdings in the listed institutions, hesitant to make big.

In this regard, many banks believe that investments classified as foreign portfolio investments can only be made by SEBI -recognized FPI. Since banks are responsible for processing flow, their rejection will either stop the transaction or run an investor to find a more real interpreted bank of the rules.

Banks comfortable with less than 10% investments by non-FPI foreign investors believe that such investments should be classified as a foreign portfolio investment, it is not necessary that the investor should be FPI. Therefore, any foreign investors-determined to buy shares whether they have an FPI license. These banks believe that FDI related paper, such as ‘Foreign Currency Gross Provisional Return’ (FC-GPR), will not be required for such portfolio investments.

Foreign exchange management (non-Debt Instruments, or NDI) rules states that investments of 10% or more in the company listed will be considered as FDI. “On the contrary, less than 10% investment by anyone outside India is considered as foreign portfolio investment under Rule 2 (T).

Shah said, “Even if there is no CB-registered FPI, a foreign person should be allowed to invest less than 10% in a company listed. However, this is an issue, which has no clear clarity, leads to various interpretations.”

Ladhasha said less than 10% of investments could be carried out under the schedule I of NDI rules. “The original purpose of the rules is to facilitate reporting and not to reduce investment below 10% under Schedule I,” he said.

This development happens at one point when SEBI has planned to allow foreigners to be purchased directly listed shares-NRIs, which are subjected to CAP.

FDI-FPI standards are often shaped by the relevant turfs of RBI (dealing with FDI) and Sebi (rules on FPI). Their inability to remove gaps has made the rules less flexible. For example, the FPIA listed company must be less than 10%; But if it buys more shares and holding up to 10%, say 12%, full 12% FDI. And, FPI sells additional shares and brings down 10%, it is still considered as FDI.