SEBI mulls easing FPI disclosure norms with higher exemption cap

The Securities and Exchange Board of India (SEBI) is examining a proposal to raise the existing 3 per cent cap on composite holdings of foreign portfolio investors (FPIs) that are eligible for exemption from making additional disclosures under the regulator's beneficial ownership framework, according to people familiar with the matter.

The proposal is aimed at providing further ease of doing business for global investors by relaxing one of the conditions for availing exemption from the additional disclosure requirements introduced in August 2023, the people said.

FPIs with over ₹50,000 crore of equity assets under management (AUM) in Indian markets, or those with more than 50 per cent of their Indian equity AUM concentrated in a single corporate group, are required to furnish additional granular disclosures. Qualifying FPIs must disclose full, look-through details of all entities and individuals holding ownership, economic interest, or control rights up to the level of natural persons.

However, SEBI carved out an exemption in March 2024 for FPIs investing in promoter-less corporate groups, subject to certain conditions, including that the combined holdings of all such exempt FPIs in the apex company do not exceed 3 per cent of its total equity share capital.

FPIs have said the 3 per cent threshold is relatively low for large, widely held companies with significant passive foreign ownership. The limit can be exhausted quickly, forcing otherwise diversified institutional investors to either rebalance their portfolios or furnish additional disclosures.

An email sent to SEBI for comments did not elicit a response.

According to the sources, the proposal would enable a larger pool of genuine institutional investors, particularly passive funds and long-only investors, to continue availing the exemption while retaining safeguards against misuse of the FPI route.

The proposal is understood to be part of the regulator's broader effort to fine-tune the additional disclosure framework based on implementation experience and feedback received from custodians and foreign investors.

In July 2024, SEBI had further eased the framework by exempting eligible university funds and university-related endowments from the additional disclosure requirements for ease of doing business.

The current exemption applies only where the apex company of the corporate group has no identifiable promoter, the FPI's concentration in the remaining companies of the group stays below 50 per cent after excluding the apex company, and the composite holding of all such exempt FPIs remains below 3 per cent.

Depositories monitor the utilisation of this threshold daily, and once it is breached, new FPIs seeking the exemption must either rebalance their holdings within the prescribed period or make additional disclosures.

The proposal is still at discussion stage alongside other measures being examined to ease compliance for foreign investors and may be taken up after internal deliberations, the people said.