It proposed, on the other hand, to relax entry rules for foreign portfolio investors willing to invest directly rather than via participatory notes (P-Notes) or offshore derivative instruments (ODIs), often seen as being a route for laundering black money.
Briefing reporters after the board meeting, Sebi Chairman Ajay Tyagi said the regulator is not looking at completely banning these instruments as some new investors tend to use them to test the Indian markets.
There have been demands from various political quarters to check the P-Note route, while a special investigation team on black money, constituted by the government on the Supreme Court directions, has also been asking Sebi to take steps to curtail misuse of these instruments.
The new measures, which follow a slew of other steps taken by Sebi in the recent past, come at a time when the value of foreign investments through P-Notes or ODIs had already fallen to a four-month low of about Rs 1.68 lakh crore by April-end.
Also Read
Tyagi said the board has approved a proposal to tighten the rules for P-Notes through imposition of a regulatory fee on issuers of such instruments.
The regulator has decided to levy a "regulatory fee" of USD 1,000 on each ODI subscriber, to be collected and deposited by the issuing FPI once every three years, starting from April 1, 2017.
Also, the board has decided to prohibit ODIs from being issued against derivatives, except those which are used for hedging purposes. The regulator would issue a circular in this regard.
At the same time, Sebi has decided to relax the entry norms for FPIs willing to invest directly in Indian markets rather than through participatory notes.
It would ease some rules for FPIs including expanding the eligible jurisdictions for registration by including countries with diplomatic tie-ups with India.
The Securities and Exchange Board of India (Sebi) will float a discussion paper on easing registration of FPI.
Orbis Financial Corporation CEO Rajesh M Sharma said: "We welcome the SEBI Board's decision to work in consultation with the market in order to simplify the various processes."
With regard to ODIs, Sebi had said quite a few ODI subscribers invest through multiple issuers and the proposed fee will discourage them from taking this route and encourage them to directly take registration as an FPI.
Commenting on the decision, Sharma said, "This may encourage the foreign investors to come through FPI route to invest in India. Having said that simplification in the FPI registration process will help."
P-Notes are issued by registered foreign portfolio investors (FPIs) to overseas investors who wish to be a part of the Indian stock markets without registering themselves directly. They, however, need to go through a proper due diligence process.
In April, Sebi's board had tightened the norms by barring resident Indians, NRIs and entities owned by them from making investment through P-Notes.
Disclaimer: No Business Standard Journalist was involved in creation of this content