Rupee investment in foreign equity unlikely

RBI against foreign firms raising money in India via IDRs.

Unlike American depository receipts and global depository receipts, the proposed Indian depository receipts may not be made fungible soon as the Reserve Bank of India is not ready to allow them to be converted into underlying equity shares listed overseas.

The Securities and Exchange Board of India recently announced guidelines for foreign companies to mobilise resources from India through issue of IDRs on the lines of ADRs and GDRs.

The capital market regulator has set a floor of Rs 50 crore and the minimum amount for issuing IDRs and the minimum investment by retail investors have been set at Rs 2 lakh. Non-resident Indians and foreign institutional investors are required to take the RBI's permission before investing in such instruments.

During its discussions with Sebi, the banking regulator has reportedly expressed reservations in allowing IDRs to be converted into underlying equity shares listed overseas on the lines of ADRs and GDRs.

However, the RBI does not mind an investor holding the receipts and trading them in the domestic market. Market sources pointed out that unless IDRs were made fungible, Indian investors would not have a level playing field vis-à-vis overseas players investing in Indian equities.

The RBI has suggested capping of investments by Indian investors in IDR issues as an alternative to denial of fungibility, as it does not have a mechanism in place for monitoring Indian investments in foreign equity markets on a daily basis.

The RBI had gone to the extent of suggesting to Sebi to hold back the IDR proposal until the SS Tarapore Committee submitted a road map for fuller capital account convertibility and till a clear picture on rupee convertibility emerged, sources pointed out. The committee is expected to submit its report in July.