The Securities and Exchange Board of India (Sebi), and the Reserve Bank of India (RBI), have issued a circular on changes in the monitoring of foreign investment holdings in listed companies.
This was triggered by a breach in the rule on foreign shareholding at HDFC Bank a year before.
Under the new framework, companies will have to appoint a depository for monitoring of foreign shareholding, including foreign portfolio investors (FPIs) and non-resident Indians. In a breach, foreign investors will be required to divest the excess quantity by selling these to domestic investors within five trading days of the date of settlement of the trades that caused the breach. Failure to do so will attract penal action from Sebi.
“The depositories shall inform the exchanges about activation of the red flag for the identified scrip. The exchanges shall issue the necessary public notifications on their respective websites. Once a red flag has been activated for a given scrip, the foreign investors shall take a conscious decision to trade in the shares of the scrip, with a clear understanding that in the event of a breach of the aggregate FPI limits, the foreign investors shall be liable to disinvest the excess holding within five trading days from the date of settlement of the trades,” Sebi specified.
In February 2017, the foreign ownership limit in HDFC Bank was breached, upon which RBI and Sebi suspended any further buying by FPIs in the stock. That had jolted market players.