Decision On Ocb Norms Likely Soon

The finance ministry is likely to decide this week on setting up norms for allowing overseas corporate bodies (OCBs) to invest in Indian markets.

They are expected to be modelled on the terms applicable to foreign institutional investors (FIIs).

A decision on the issue has become necessary given the peculiar nature of the Indian capital markets, where the OCBs with a minuscule capital have acted as a front for investments from abroad, especially through the Mauritius route.

The issue is to be taken up at the meeting of the high-level capital committee, chaired by the Reserve Bank of India governor Bimal Jalan, and which includes the Securities and Exchange Board of India chairman D R Mehta and finance secretary Ajit Kumar.

The issue has been put up high on the agenda for approval by the committee, though given the sensitive nature of the issue, none of the three -- the Sebi, RBI and the finance ministry-- are keen to get involved in the regulatory aspect.

The guidelines are expected to include minimum investment cap and clear guidelines for making them conform to the Foreign Exchange Management Act (Fema) provisions.

More significantly, it is expected that the ministry will have to decide on who should exercise regulatory jurisdiction over these bodies.

OCBs are companies registered abroad, in which non resident Indians hold at least 60 per cent interest. They are allowed to invest in India through a registered broker or stock exchange.

Though their activities are guided by schedule 3 of Fema, but given their large clout in the market, the authorities are concerned that they can easily influence the stock prices and against which there are no surveillance mechanism available right now.

In the past few months while the role of OCBs have been examined in routing investments into the bourses, both the RBI and Sebi have said that they cannot take up monitoring of OCBs.

The RBI has said that while it regulates the activities of authorised dealers in so far as they relate to receiving remittances from OCBs are concerned, "it does not exercise any regulatory jurisdiction either over the OCBs or over the Mauritius route".

Similarly, Sebi has also washed its hand off the affair. In a communication to the RBI, it has said "The Sebi is not in favour of registering OCBs on the lines of FIIs as the investments made by OCBs are regulated by RBI."

In fact the difference between the two has held up any decision in the last meeting, with the finance ministry also not in favour of putting in any restrictive policies that will curtail the scope of foreign investment in the country.

According to senior officials any witch hunt can turn counter productive for the country. But now with the markets turning more FII dominated, the government is keen to ensure that the issue is settled soon.