The Securities and Exchange Board of India (Sebi), in its circular of April 10, in the process of clarifying ‘Know Your Client’ (KYC) norms, denied non-resident Indian (NRI)/resident institutions from managing global funds under the Foreign Portfolio Investment (FPI) scheme — ‘white’ category. In the meantime, non-Indians are allowed to manage such funds. This affects billion-dollar portfolio investments into India. The problem with the circular is that, instead of clarifying the KYC norms, it has discriminated between foreign institutions and NRI-resident institutions.
The circular uses the identification of ‘beneficial ownership’ to carry out KYC exercises. Unfortunately, it ends up restricting investments and management rights of NRI-resident institutions such that, if there is any fund to be promoted or controlled by them for attracting global investment, it would be ineligible for investment in India as FPI. The circular, however, allows the same pooling vehicle to be set up by other foreigners or foreign institutions.