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Foreigners Allowed to Invest Directly in Equities
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| 05. POLICY |
| Foreigners Allowed to Invest Directly in Equities |
| The Hindu Business Line: January 02, 2012 |
New Delhi: The Government has announced a new scheme under which a foreign individual, a foreign pension fund or even a foreign trust will be able to invest directly in the Indian equity market. These investors will be called ‘Qualified Foreign Investors' (QFIs). The new scheme is expected to be ready from January 15.
“This has been done in order to widen the class of investors, attract more foreign funds, reduce market volatility and deepen the Indian capital market,” a Finance Ministry statement said.
The investors are already allowed direct access to Indian mutual fund schemes. The latest decision is the next logical step in the direction, the statement added.
At present, foreign institutional investors (FIIs) or foreigners, through sub-accounts with registered FIIs, can invest in the equity market. Unregistered foreign individuals and institutions invest through participatory notes (PNs). Now, this trend will change.
The new procedure
However, investment is restricted to QFIs from countries that are compliant with the Financial Action Task Force (FATF) recommendations and are signatories to the international body of securities market, IOSCO's, memorandum of understanding.
This condition will allow investors from over 80 countries to access the Indian equity market, save Pakistan and some other countries.
The QFIs will have a separate ceiling from FIIs and non-resident Indians (NRIs). A QFI can hold up to 5 per cent of paid-up equity of a company and all QFIs put together cannot hold more than 10 per cent in a company.
All QFIs will first need to open a demat account with any depository participants (DPs), as sale and purchase of equity will be allowed only through such an account. Also, one QFI will be permitted to open only one account.
This new category of investors will also have to fulfil the ‘Know Your Customer' (KYC) norms prescribed by the regulators.
The Central Board of Direct Taxes (CBDT) will issue a separate form for Permanent Account Number and KYC, especially for the QFIs. The depository participant can facilitate the QFIs to fulfil all these statutory requirements.
Tax treatment
Regarding tax treatment, a Finance Ministry official clarified that a separate notification would be required to be issued by the Income-Tax Department. However, this is likely to be the same as for domestic investors. However, QFIs from a country that has a double taxation avoidance agreement (DTAA) with India may get benefits like any other FII.
On August 9, 2011, the Government had allowed QFIs to invest directly in domestic mutual fund schemes.
These investors can now invest up to $10 billion in equity schemes, while for debt mutual fund schemes, there will be an additional limit of $3 billion. There will be no limit for one investor or one scheme.
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| SEBI allows interest futures trading on G-Secs |
| The Hindu Business Line: January 02, 2012 |
Mumbai: Market regulator SEBI on Friday allowed trading in exchange traded interest rate futures on two- and five-year notional coupon bearing government securities on currency derivatives segment of stock exchanges.
Eligible stock exchanges may offer this after obtaining prior approval from SEBI, said a circular issued by the capital market regulator.
The notional coupon bearing two-year GoI securities has a notional coupon of seven per cent paid semi-annually and face value of Rs 100. While the maximum maturity of the contract would be 12 months, the contract size has been fixed at Rs 2 lakh.
The quotation would be similar to the quoted price of the GoI securities. To begin with, three serial monthly contracts can be introduced, said the circular.
Settlement in cash
The futures on notional GoI securities would be settled in cash in rupees and the settlement price would be determined on the basis of the yields of a basket of eligible bonds selected by the exchange.
Yields of bonds in the basket to be determined through a polling process carried out by Fixed Income, Money Market and Derivatives Association (FIMMDA), it said. The last trading day for the contract would be the last Thursday of the expiry month.
These futures on notional government securities are unlikely to have a major impact in the Interest Rate Futures market, as the trading volumes in these segments of papers is limited, said the head of treasury of a public sector bank.
In March, the RBI had introduced Interest Rate Futures on 91-Day Treasury Bills.
“While the liquidity in the two and five year G-Secs are better than in T-Bills, it is still not sufficient to support the interest rate futures market.
“The instruments for this market are being added gradually.
“Eventually it might be introduced in 10-year paper, which has good volumes,'' the bank official said.
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| RBI removes cap on mobile banking transactions |
| The Hindu Business Line: December 23, 2011 |
Mumbai: Customers will soon be able to transact more than Rs 50,000 through their mobile phones.
The Reserve Bank of India has removed the cap of Rs 50,000 per day per transaction through mobile banking.
It has now been decided that individual banks can place transaction limits based on their own risk perception and with approval of their respective boards.
The RBI said that banks are increasingly extending mobile banking facilities to their customers. Inter-bank Mobile Payment Service (IMPS) developed and operated by the National Payment Corporation of India (NPCI) has also enabled real-time transfer of funds through the medium of the mobile phone between accounts in different banks.
The volume and value of mobile banking transactions are also showing an uptrend, said the RBI.
According to Mr Lalit Sinha, General Manager, Alternate Channels and New Initiative Department, Union Bank of India, it is a welcome move by the RBI.
Next phase
As of now mobile banking transactions happen only from person to person and are used mainly for remittances.
But the next phase is where mobile transactions would be used for merchant payments, that is, for purchasing goods.
In these cases the limit of Rs 50,000 would prove to be insufficient.
“A few banks are in the testing phase for this and should be rolling it out soon. So, the RBI's move has come at the right time. We will do our own risk assessment and have a reasonable limit,” Mr Sinha said.
Recently, Citi India had launched a cash management service for corporate customers, which will help them receive payments from their retailers or customers through mobile phones. In such cases, the higher limit would be helpful.
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| Rates on non-resident deposits freed |
| Business Standard: December 17, 2011 |
Mumbai: To improve inflow of foreign currency, the Reserve Bank of India (RBI) on Friday deregulated the interest rates that banks would pay on Non-Resident (External) Rupee (NRE) Deposits and Ordinary Non-Resident (NRO) accounts.
RBI said this would provide greater flexibility to banks in mobilising non-resident deposits in the prevailing market conditions. “Banks are free to determine their interest rates on both savings deposits and term deposits of a maturity of one year and above under NRE deposit accounts and savings deposits under NRO accounts with immediate effect,” it said.
The revised deposit rates will apply only to new deposits and on renewal of those that have matured. However, interest rates offered by banks on NRE and NRO deposits cannot be higher than rates offered on comparable domestic rupee deposits. Also, at any point of time, an individual bank should offer uniform rates at all its branches. Currently, banks offer 3.51 per cent on NRE deposits for two-three years and 3.64 per cent for deposits above three years.
RBI said banks may take prior approval of their respective boards or asset liability committees while fixing the interest rates on such deposits. Also, banks have been asked to closely monitor their external liability arising on account of such deregulation and ensure asset-liability compatibility from a systemic risk point of view.
This step comes three weeks after RBI had raised the cap on interest rates on NRE and Foreign Currency Non Residential Account (B) (FCNR-B) deposits by 100 basis points and 25 bps, respectively. “The deregulation provides a good opportunity for NRIs to get attractive rates. We will soon take a decision on revising the rates to tap this route,” said Alok Misra, chairman and managing director, Bank of India.
Indian banks have a network of branches abroad -- in West Asia, the Asia-Pacific, Britain and North America. RBI data shows the deposits in NRE accounts were $25 billion and in NRO accounts, $11 bn, at the end of October.
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