The Hindu Business Line : FIIs may get more time to pare Participatory Notes

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FIIs may get more time to pare Participatory Notes

Only a small number of FIIs likely to be affected: Chidambaram

Mr P. Chidambaram

Our Bureau

New Delhi, Oct. 19 The Finance Minister, Mr P. Chidambaram, has said that the Securities and Exchange Board of India could, if necessary, give more than 18 months for foreign institutional investors (FIIs) that have issued Participatory Notes based on derivatives to wind down their positions.

“It is in consultation with them (FIIs), not necessarily consent, we announced that they will have to wind down P-notes issued over derivatives over a period of 18 months. SEBI has reserved the right to extend that (18 months) if necessary”, Mr Chidambaram said at a televised investor conference at New York on Thursday.

SEBI reserving the right to extend the wind down period beyond 18 months was not explicitly mentioned in the consultation paper issued on Tuesday.

Stating that only a small segment of FIIs, out of the over 1,000 registered in India, are likely to be affected by the proposed measures, Mr Chidambaram said that only a handful of FIIs who deal with P-notes upon derivatives.

The Finance Minister also assured FIIs that the Government had no other measure under contemplation to curb capital inflows besides those on offshore derivative instruments announced by SEBI early this week.

To moderate capital inflows and slowdown the use of PNs, SEBI on Tuesday proposed certain measures that would require FIIs to wind down on certain kind of PNs, which are based on derivatives, and capped PNs as proportion of assets under custody to 40 per cent. Mr Chidambaram said that the SEBI board would meet on October 25 to approve these proposals in the form of regulations.

The Finance Minister also assured FIIs that he would advise SEBI to call a meeting of all potential FIIs and explore ways for simplifying the process of registration for such institutional investors.

Some of the FIIs contended that placing 40 per cent limit on the assets under custody would constrain their access to the Indian capital market. “It will trim flows to the country”, a representative of FII said.

CPI(M) for ban

Meanwhile, the CPI(M), a key ally of the UPA Government, on Friday sought a complete ban on participatory notes (PNs), stating that financial entities that are unwilling to meet disclosure norms should not be allowed to participate in the Indian capital markets.

“The CPI(M) is of the firm opinion that PNs should be prohibited, as has been recommended by the RBI”, a statement issued by the CPI(M) Polit Bureau said.

It also wanted the Government to move towards insulating the financial system from speculative capital inflows. The Government should realise that the surge in FII inflows, encouraged by rupee appreciation and interest rate hikes can eventually have serious implications, the statement said.