What changed
Previously, QFIs could only invest in rupee-denominated mutual fund units. This circular extends QFI access to equity shares of listed Indian companies, including rights, bonus, and corporate action shares. It also mandates a single rupee pool bank account maintained by the DP with an AD Category-I bank for all QFI equity transactions.
What it means for you
Banks acting as AD Category-I must now facilitate DP-maintained single rupee pool accounts for QFI equity investments, ensuring timely repatriation within five working days. This expands the investor base for Indian equities, potentially increasing foreign portfolio flows. Banks need to align their systems for monitoring these accounts and adhering to the five-day settlement and repatriation rules.
What you must do
- Set up processes to open and maintain single rupee pool bank accounts for DPs handling QFI equity investments.
- Ensure repatriation of unutilized funds and sale proceeds within five working days as per circular timelines.
- Train staff on KYC and reporting requirements for QFI transactions under this new scheme.
- Coordinate with DPs to verify that QFI investments comply with SEBI guidelines and investment limits.
Who it affects
AD Category-I banks, Depository Participants (DPs), Qualified Foreign Investors (QFIs), Indian listed companies and stock exchanges
What is the key difference between this circular and earlier QFI rules?
Earlier, QFIs could only invest in rupee-denominated mutual fund units. This circular now allows them to directly purchase equity shares of listed Indian companies on a repatriation basis.
How must banks handle the funds for QFI equity investments?
Banks must maintain a single rupee pool account per DP for all QFI equity transactions. Funds from inward remittances or sale proceeds must be repatriated within five working days, or can be reused for fresh purchases within that window.
What happens if the DP fails to invest the funds within five days?
If the DP does not purchase equity within five working days of credit to the pool account, the funds must be immediately repatriated back to the QFI's designated overseas bank account.