RBI/2011-12/347
A. P. (DIR Series) Circular No.66
January 13, 2012
To
All Category – I Authorised Dealer banks
Madam / Sir,
(I) Scheme for Investment by Qualified Foreign Investors in equity shares (II)
Scheme for Investment by Qualified Foreign Investors in Rupee Denominated Units
of Domestic Mutual Funds – Revision
Attention of Authorised Dealers Category – I (AD Category - I) banks is invited
to A.P. (DIR Series) Circular No.8 dated August 9, 2011 and
A.P. (DIR Series) Circular No. 42 dated November 3, 2011 in terms of which Qualified Foreign
Investors (QFIs as defined therein to mean non-resident investors, other than
SEBI registered FIIs and SEBI registered FVCIs, who meet the KYC requirements of
SEBI) are allowed to invest in rupee denominated units of domestic Mutual Funds
subject to the terms and conditions mentioned therein.
(I) Scheme for Investment by Qualified Foreign Investors in equity shares
2. It has now been decided to allow QFIs to purchase on repatriation basis
equity shares of Indian companies subject the following terms and conditions :
(i) Eligible instruments and eligible transactions – QFIs shall be permitted to
invest through SEBI registered Depository Participants (DPs) only in equity
shares of listed Indian companies through recognized brokers on recognized stock
exchanges in India as well as in equity shares of Indian companies which are
offered to public in India in terms of the relevant and applicable SEBI
guidelines/regulations. QFIs shall also be permitted to acquire equity shares by
way of rights shares, bonus shares or equity shares on account of stock split /
consolidation or equity shares on account of amalgamation, demerger or such
corporate actions subject to the investment limits as prescribed in para. 2 (iv)
below.
QFIs shall be allowed to sell the equity shares so acquired by way of sale
(a) Through recognized brokers on recognized stock exchanges in India; or
(b) In an open offer in accordance with the SEBI (Substantial Acquisition of
Shares and Takeovers) Regulations, 2011; or
(c) In an open offer in accordance with the SEBI (Delisting of Securities)
Guidelines, 2009; or
(d) Through buyback of shares by a listed Indian company in accordance with the
SEBI (Buyback) Regulations, 1998.
(ii) Mode of payment / repatriation – For QFI investments under this scheme a
separate single rupee pool bank account would be maintained by the DP with an AD
Category- I bank in India for QFI investments under this scheme. The DP will
purchase equity at the instruction of the respective QFIs within five working
days (including the date of credit of funds to the single rupee pool bank
account by way of foreign inward remittances through normal banking channels)
failing which the funds would be immediately repatriated back to the QFI’s
designated overseas bank account. The sale proceeds of the equity shares will
also be received in this single rupee pool bank account of the DP and shall be
repatriated to the designated overseas bank account of the QFI within five
working days (including the date of credit of funds to the single rupee pool
bank account by way of sale of equity shares) of having been received in the
single rupee pool bank account of the DP. Within these five working days, the
sale proceeds of the existing investment can be also utilized for fresh
purchases of equity shares under this scheme, if so instructed by the QFI.
Dividend payments on equity shares held by QFIs can either be directly remitted
to the designated overseas bank accounts of the QFIs or credited to the single
rupee pool bank account. In case dividend payments are credited to the single
rupee pool bank account they shall be remitted to the designated overseas bank
accounts of the QFIs within five working days (including the day of credit of
such funds to the single rupee pool bank account). Within these five working
days, the dividend payments can be also utilized for fresh purchases of equity
shares under this scheme, if so instructed by the QFI.
(iii) Demat accounts - QFIs would be allowed to open a dedicated demat account
with a DP in India for investment in equity shares under the scheme. The QFIs
would however not be allowed to open any bank account in India.
(iv) Limits - The individual and aggregate investment limits for the QFIs shall
be 5% and 10% respectively of the paid up capital of an Indian company. These
limits shall be over and above the FII and NRI investment ceilings prescribed
under the Portfolio Investment Scheme for foreign investment in India. Further,
wherever there are composite sectoral caps under the extant FDI policy, these
limits for QFI investment in equity shares shall also be within such overall FDI
sectoral caps. The onus of monitoring and compliance of these limits shall
remain jointly and severally with the respective QFIs, DPs and the respective
Indian companies (receiving such investment).
(v) Eligibility - Only QFIs from jurisdictions which are FATF compliant and with
which SEBI has signed MOUs under the IOSCO framework will be eligible to invest
in equity shares under this scheme.
(vi) KYC - DPs will ensure KYC of the QFIs as per the norms prescribed by SEBI.
(vii) Permissible currencies - QFIs will remit foreign inward remittance through
normal banking channel in any permitted currency (freely convertible) directly
into single rupee pool bank account of the DP maintained with AD Category-I
bank.
(viii) Pricing – The pricing of all eligible transactions and investment in all
eligible instruments by QFIs under this scheme shall be in accordance with the
relevant and applicable SEBI guidelines only.
(ix) Reporting – In addition to the reporting to SEBI as may be prescribed by
them, DPs will also ensure reporting to the Reserve Bank of India in a manner
and format as prescribed by the Reserve Bank of India from time to time.
(II) Scheme for Investment by Qualified Foreign Investors in Rupee Denominated
Units of Domestic Mutual Funds
3. QFI investment in rupee denominated units of Domestic Mutual Funds under the
Direct Route – On a further review it has been decided to modify the time period
for which funds (by way of foreign inward remittance through normal banking
channels from QFIs as well as by way of credit of redemption proceeds of the
units of domestic Mutual Funds by QFIs in India) can be kept in the single rupee
pool bank account of the DP under the scheme for investment by QFIs in units of
domestic Mutual Funds (as per the terms and conditions specified in A.P. (DIR
Series) Circular No.8 dated August 9, 2011 and A.P. (DIR Series) Circular No.42
dated November 3, 2011) to five working days (including the day of credit of
funds received by way of foreign inward remittance through normal banking
channels from QFIs as well as by way of credit of redemption proceeds of the
units of domestic Mutual Funds by QFIs in India). It has also been decided to
allow credit of dividend payments to QFIs on account of units of mutual funds
held by them to the single rupee pool bank account subject to the condition that
in case dividend payments are credited to the single rupee pool bank account
they shall be remitted to the designated overseas bank accounts of the QFIs
within five working days (including the day of credit of such funds to the
single rupee pool bank account). Within these five working days, the dividend
payments can be also utilized for fresh purchases of units of domestic mutual
funds under this scheme, if so instructed by the QFI.
4. AD Category - I banks may bring the contents of the circular to the notice of
their customers/constituents concerned.
5. Necessary amendments to Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident outside India) Regulations, 2000 (Notification No.
FEMA 20/2000-RB dated May 3, 2000) and Foreign Exchange Management (Deposit)
Regulations, 2000 (Notification No. FEMA 5/2000-RB dated May 3, 2000) are being
notified separately.
6. The directions contained in this circular have been issued under Sections
10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and
are without prejudice to permissions / approvals, if any, required under any
other law.
Yours faithfully,
(Dr. Sujatha Elizabeth Prasad)
Chief General Manager