RBI lets foreigners open special rupee, foreign currency accounts

 

Mumbai: The Reserve Bank of India (RBI) on Tuesday made investments in India easier for foreigners by allowing them to open special rupee as well as foreign currency accounts with local banks.

For this purpose, RBI clubbed foreign institutional investors (FII) and qualified foreign investors (QFI) under one category called “Registered Foreign Portfolio Investor” (RFPI).

To invest money in the domestic market, an RFPI can transfer its money from the foreign currency account to the rupee account.

After investing through the rupee account, the investment proceeds can again be transferred to the foreign currency account for repatriation purpose.

In both the legs, the fund will be converted at the prevailing exchange rate.

This will cut the clutter for foreign investors who used to avail the services of a custodian. Since the investment can be done directly, the investor can time its entry and exit more accurately than it could have done with third party help, said market experts.

Harihar Krishnamoorthy, treasurer, FirstRand Bank Ltd, said the move is in line with the reforms agenda of RBI.

“This will make business easier for foreign funds because it will reduce their cost of hedging, which, in turn, will reduce volatility in the markets and deepen participation,” Krishnamoorthy said.

Earlier, foreign funds were not allowed to open local bank accounts and the proceeds on sale or purchase in the local debt or equity market would have to be kept with a custodian bank.

“Having a rupee account in their own name will mean these funds can now take a view on the rupee, which was not allowed earlier,” Krishnamoorthy said.

RFPIs may also offer cash or foreign sovereign securities with “AAA” rating or corporate bonds or domestic government bonds, as collateral to stock exchanges for their transactions in the cash as well as the derivative segment of the market.

This would enable the foreign investors to maintain less margins with exchanges and create a level-playing field with domestic investors.

This is the first time foreign entities have been allowed to keep such debt papers and cash as collaterals for trading in cash and derivatives segments. At present, while domestic investors are allowed to do so, foreign investors are required to pay 100% upfront margin. “This was a long-standing demand from foreign investors who want to trade in Indian markets. This will provide a level playing field to foreign investors and will facilitate more foreign inflows,” said Sudip Bandyopadhyay, managing director and chief executive officer, Destimoney Securities Pvt. Ltd.

Capital markets regulator Securities Exchange Board of India (Sebi) had clubbed all foreign investors into one common category called foreign portfolio investors, or FPI. The aim was to put in place an easier registration process and ease of trading

MANISHSAINI
PGDM  2 SEMSTER