Finance minister eases norms to attract foreign investors

In a move aimed at attracting foreign investments into the country’s equity and corporate bond markets, the government has eased norms to enable residents of West Asian countries and all EU nations to invest directly in the stock markets and allowed individual overseas investors to bring up to $1 billion into the country’s debt market.

The relaxation in overseas investment norms for individual investors, also known as the Qualified Institutional Investors (QFIs), is aimed at “making QFI scheme more attractive to potential investors and enhance flow of foreign capital into India,” the Finance Ministry said on Tuesday.

The move is expected to bring in greater foreign inflows from individual investors into the equity, mutual funds and corporate bond markets, something that could help in stabilising the wobbly rupee. Among the norms that have been eased, the most important is regarding the opening of individual bank accounts in the country. Hitherto, foreign individual investors could not open separate bank accounts in India. Now, QFIs have been allowed to open individual non-interest bearing rupee bank accounts with authorised dealer banks in India for receiving funds and making payment for transactions in securities.

The second is regarding the limit of 5 days for keeping money by QFIs, which has now been removed. According to the changed rules, there is no specified time period for which they can keep funds in India. Earlier, there were only about 34 Financial Action Task Force (FATF) member nations that were eligible for investing in India as foreign individual investors. The number has been hiked now and investors from 33 more member countries of Gulf Cooperation Council (GCC) and the European Commission, which are not part of the FATF, can also invest in the country. “In view of the possibility of attracting high net-worth entities from these countries, there residents will now be eligible to be considered as QFIs,” said Thomas Mathew, joint secretary (Capital Markets), Finance Ministry.

The finance ministry is expected to conduct composite road shows in six West Asian countries, including Oman, Kuwait, Dubai and Bahrain, during June 10-15. The ministry is targeting investments to the tune of $50-70 billion from the Middle East family funds into the country by next year. An official circular regarding the change in norms is expected from the RBI and SEBI is likely within a week. On the increase investments by QFIs, Mathew said: “A separate sub-limit of $1 billion has been created for QFI investment in corporate bonds and mutual fund debt schemes.”