The Securities and Exchange Board of India on Tuesday refuted the claims made by the Mumbai-based legal firm Nishith Desai Associates and foreign investor lobby group Asset Managers Roundtable of India (AMRI) that $75 billion will flow out of India if it implements its ban on non-resident Indians and persons of Indian origin (PIOs) from holding beneficial ownership in foreign portfolio investment (FPI) vehicles.

Nishith Desai and AMRI representatives, in a press meet on Monday, had opposed the ban.

“It is preposterous and highly irresponsible to claim that $75 billion of FPI will move out of the country because of SEBI’s circular issued in April,” a statement from the regulator said. BusinessLine had reported on April 25 that foreign portfolio investors were uneasy over SEBI’s new KYC strictures that it wants to implement before the end of this year.

Circular on beneficial owners

In April, SEBI had asked FPIs under Category II and III to report, within six months, the BOs (beneficial owners) or ultimate persons controlling the entities.

Category II FPIs largely include regulated institutions, persons, broad-based funds and university, pension and endowment funds. Most of these were so far exempt from rigorous KYC requirements, such as submitting name and personal identity proof of BO. But SEBI said it can call for such details. It has defined BOs and barred NRIs and PIOs from holding beneficial ownership in FPIs.

AMRI said that an immediate impact of the SEBI circular (if not amended) from December 31, 2018, could be that the $75 billion investment managed by OCIs (overseas citizens of India), PIOs, NRIs and resident institutions (RIs) will be disqualified from investing in India and will have to be withdrawn and liquidated within a short timeframe, thereby affecting the Indian markets and currency. AMRI said it had written a letter on August 29 clarifying this to SEBI Chairman Ajay Tyagi.

AMRI members, on whose behalf the letter was signed, include AMANSA, Edelweiss, Karma Capital, Morgan Stanley, Enam, Helios and Kotak. Of the $450-billion investments by FPIs, $75 billion is estimated to be managed by NRIs, OCIs, PIOs and regulated resident institutions and individuals.

SEBI’s aim is to check money laundering via overseas vehicles. It is a known fact that the BO of participatory notes, now banned by SEBI, and global depository receipts, were Indian promoters.

“The circular is vague, opaque and confusing. It distrusts NRIs and the resident institutional community. A Nigerian can manage an FPI but not an NRI or a large Indian group,” said Nandita Agarwal Parker, President, AMRI, while jointly addressing the media with Nishith Desai, founder of Nishith Desai Associates. “We understand the government’s concern over round-tripping. FPIs have no objection in disclosing who the BO is but why restrict investments?”

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