Skip to main content

Sebi planning to tighten depository receipt regulations


The Securities and Exchange Board of India (Sebi) is planning to clamp down on depository receipts (DRs) as part of efforts to check the flow of black money into the stock market.
Sources said Sebi planned to make it mandatory for foreign depositories to reveal details of endbeneficiaries holding DRs issued by Indian companies.
The new framework will align knowyourcustomer (KYC) requirements for DRs with provisions to prevent money laundering.
Many Indian companies issue DRs to raise capital abroad.
DRs have shares as an underlying asset and are typically issued byabank, known as the depository bank, on behalf of a company.
Sebi has proposed DRs can be exercised by the issuer only if information on beneficial ownership is available.
Further, all acquisitions made through DRs resulting inachange in control inalisted company are expected to be governed by Sebi´s takeover rules.
For unlisted companies, DRs are permitted only in sectors eligible for investment by registered foreign venture capital firms as prescribed by the Reserve Bank of India (RBI).
The proposed changes have been submitted to the finance ministry and were discussed with its officials duringarecent meeting.
Sources said the Sebi working group on DRs had conveyed its reservations about the instrument, that the identity of the overseas holder could not be known in the existing framework.
Sebi has also deliberated with representatives of the RBI, custodians, depository banks and revenue department officials.
The new rules are expected to increase compliance for depository banks as they will be asked to provide monthly details of subscribers in case of redemptions and transfers.
The information will have to be shared with the domestic depository.
Further, all financial agreements among the foreign depository, domestic depository and issuers will be tripartite agreements.
“Any new requirements introduced by the regulators to enhance transparency may be able to prevent abuse of law. However, there must beabalance to ensure that genuine foreign investors do not feel excessively burdened with the compliance requirements,” said Sai Venkateshwaran, partner and head, accounting advisory services, KPMG.
Some experts said the new rules could hurt ease of doing business.
“An Indian company should be allowed to decide the best avenue to list its equity. Further, it will be difficult for foreign depositories to maintain lists of beneficial owners,” said Sudhir Bassi, partner, Khaitan & Co.
Following the recommendations of the MS Sahoo Committee, the government had in 2014 notified the liberalised DR scheme.
The proposed norms require domestic custodians to maintain records of issuers in coordination with foreign depositories and report these to an Indian depository for the purpose of monitoring limits under the Foreign Exchange Management Act.
The Business Standard, New Delhi, 20th July 2017

Comments

Popular posts from this blog

RBI minutes show MPC members flagged upside risks to inflation

RBI minutes show MPC members flagged upside risks to inflation Concerns about economic growth and easing inflation prompted five of the six monetary policy committee (MPC) members to call for a cut in the repo rate, but most warned that prices could start accelerating, show the minutes of the panel’s last meeting, released on Wednesday. The comments reflected a tone of caution and flagged upside risks to inflation from farm loan waivers, rise in food prices, especially vegetables, price revisions withheld ahead of the goods and services tax, implementation of house rent allowance under the 7th pay commission and fading of favourable base effect, among others. On 2 August, the panel chose to cut the repurchase rate—the rate at which the central bank infuses liquidity in the banking system—by 25 basis points to 6%. One basis point is one-hundredth of a percentage point. Pami Dua, professor at the Delhi School of Economics, wrote that her analysis showed “a fading economic growth outlook, as …

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

Differential Tax Levy under GST: Food Firms May De-Register Trademarks

Differential Tax Levy under GST:Food Firms May De-Register Trademarks The government’s decision to charge an enhanced tax rate on trademark food brands is leading several rice, wheat and cereal manufacturers to consider de-registering their product trademarks. Irked by the June 28 central government notification fixing a 5 per cent goods and services tax (GST) rate on food items packaged in unit containers and bearing registered brand names, the industry has made several representations to the government to reconsider the differential tax levy, which these players say is creating an unlevel playing field within these highly-competitive and low-margin industries. Sources say that the move has affected the packaged rice industry the hardest and allowed the un-registered market leaders, India Gate and Daawat, to gain advantage as compared to other registered brands such as Kohinoor and Lal Qilla. Smaller players are even more worried with this enhanced rate of tax (against the otherwise …