French investors BNP Paribas, Societe Generale to gain most as Sebi eases FPI disclosure norms

Last month Sebi proposed easing of disclosure norms for FPIs

Large French banks and foreign portfolio investors (FPIs), including BNP Paribas and Societe Generale, could be among the biggest beneficiaries of the easing of concentration norms proposed by India’s capital market regulator, people privy to the development said. The hike in the capital gains tax rate in the Union Budget 2024 may confer an advantage on French banks since France is among the few countries whose tax treaty with India offers capital gains tax exemption, experts said.

In August 2023, the Securities and Exchange Board of India (Sebi) proposed to make it mandatory for FPIs having concentrated holdings in select companies or having an asset size of more than Rs 25,000 crore in India to provide granular beneficial ownership data. However, the French institutions were facing challenges in providing beneficial ownership details due to data privacy concerns and confidentiality clauses with the investors.

Hence, the large French banks which breached or were nearly breaching the Rs 25,000-crore threshold had to bring their holdings value under the limit so that they don’t fall under the purview of granular disclosures. In some of the cases, some of these lenders had to turn down fresh clients, especially in the area of ODI issuances, to keep below the threshold, the people cited added.

On July 30, Sebi floated a discussion paper proposing to ease the disclosure rule by applying it only in case of investors coming from Land Bordering Countries (LBCs) such as China. Under the new rules, if majority of the FPI clients comprises non-LBC investors, then there is no need to provide granular data. So, even if these lenders cross the Rs 25,000-crore mark in terms of asset value, they still don’t have to provide granular BO data as long as they are not majority owned by Chinese investors.

“With the increase in tax rates, many investors may rethink their strategies, making the French bank route more appealing. Sebi's relaxed FPI concentration norms now allow these institutions to surpass the Rs 25,000-crore threshold without needing to provide granular disclosures, provided they met the prescribed conditions. This regulatory shift could lead to a noticeable change in how foreign portfolio investments are structured in India,” said Suresh Swamy, partner at Price Waterhouse & Co LLP.

Emails sent to BNP Paribas and Societe Generale remained unanswered.

In the aftermath of Hindenburg episode in 2023, Sebi had proposed numerous tweaks to FPI rules, including the mandatory disclosure of beneficial ownership data. Apart from FPIs having more than Rs 25,000 crore in India assets, granular details of beneficial ownership were mandatory even for those foreign funds who held more than 50 percent of their asset portfolio in a single company or in a single group.

The disclosure norms, however, exempted sovereign wealth funds, certain exchange traded funds and certain mutual foreign mutual funds from disclosing beneficial ownership data even if they fulfilled any of the two conditions laid out by the regulator.

Experts say Sebi’s recent rationalisation of the disclosure norms would benefit several FPIs. “This is a pragmatic move by Sebi and will definitely benefit such FPIs, in terms of not providing granular data of the beneficial owners. The intent is to monitor only those FPIs there is a doubt on whether BOs from LBCs are controlling the FPIs, i.e. 33-51 percent beneficial ownership,” said Punit Shah, partner at Dhruva Advisors.

France is a key source of foreign investment into India, especially in the listed equity space. According to the depository data, France stood in the tenth position in terms of FPI investments into India with funds coming from France holding securities worth Rs 1.63 lakh crore.