Banks may sell foreign stocks

By SiliconIndia   |   Monday, 09 April 2007, 07:00 Hrs
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MUMBAI: Policy makers in India are examining a proposal to allow financial intermediaries to offer a product that will enable local investors to invest in stocks of foreign companies up to an annual limit of $50,000.

Rules governing outbound foreign investment administered by the central bank provide for local residents to invest up to $50,000 annually in stocks or property abroad, reported a business daily.

However, both local and foreign financial intermediaries are forbidden from marketing investment products to investors here. Banks and institutions are yet to secure an approval from the banking regulator, although, technically, the rules provide for investment abroad for individuals.

A recent meeting attended by officials from the finance ministry, the Reserve bank of India (RBI) and Securities and Exchange board of India (Sebi) discussed a proposal to allow investors here to put money in a structured product that has underlying foreign shares.

One official termed it as reverse participatory notes (PN). This product is offered to foreign investors who want to take an exposure to Indian stocks. The ministries of finance and financial sector regulators, RBI and Sebi, have had a round of talks on the proposal, a senior government official said, adding that in principle, the regulators were in agreement. However, the timing of the approvals and guidelines for issuing such products would be decided by the central bank, he added.

Policy makers want to encourage domestic investors to diversify their investments. So, the liberalized overseas investment facility for individuals to buy into stocks of foreign companies has been introduced. Besides, mutual funds have also been allowed to launch schemes aimed at investment in overseas stocks.

The official said an Indian entity with overseas operations could offer such structured investment products within the annual entitlement. It is true that an Indian bank or institution that has an overseas outfit could offer such products provided it has approvals from the overseas regulator and the Indian banking regulator.

A senior bank official said although the rules provide for it, not a single bank has managed to obtain an approval from the local regulator to facilitate overseas equity investment. Most domestic entities may not have the skills or expertise to offer such a product or service but can overcome the hurdle by roping in an overseas wealth management firm. This will mean sharing fee income.

Some attribute the reluctance on the part of the regulator to free up the liberalized investment scheme to uncertainties relating to the responsibility to be shouldered for investor protection in this case. However, the issue has been flagged again and officials expect movement on the subject in near term.

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