What changed
RBI has operationalised the IDR Rules with immediate effect, enabling eligible foreign companies to issue IDRs through a Domestic Depository. The circular clarifies that FEMA regulations do not apply to resident Indians investing in IDRs traded on Indian stock exchanges. It also specifies that IDRs cannot be redeemed into underlying shares before one year from issue date, and automatic fungibility is not allowed.
What it means for you
Banks acting as AD Category-I must ensure compliance with IDR Rules, SEBI guidelines, and FEMA provisions when facilitating IDR transactions. For financial/banking companies with Indian presence, prior approval from sectoral regulators is mandatory before IDR issuance. Banks need to verify that NRIs investing in IDRs use only NRE/FCNR(B) accounts, and that resident individuals selling underlying shares post-redemption do so within 30 days.
What you must do
- Ensure all IDR transactions comply with Companies (IDR) Rules, 2004, SEBI DIP Guidelines, and relevant FEMA notifications.
- Verify that financial/banking companies issuing IDRs have obtained prior approval from their sectoral regulator.
- Confirm NRIs invest in IDRs only through NRE/FCNR(B) accounts and that resident individuals sell underlying shares within 30 days of conversion.
- Monitor that IDRs are not redeemed into underlying shares before one year from issue date and that automatic fungibility is not applied.
Who it affects
AD Category-I banks, Eligible foreign companies issuing IDRs, Resident Indian investors, FIIs and SEBI-approved sub-accounts, NRIs
Can IDRs be converted into underlying shares immediately after issue?
No, IDRs cannot be redeemed into underlying equity shares before the expiry of one year from the date of issue.
Are NRIs allowed to invest in IDRs using any NRI account?
NRIs can invest in IDRs only out of funds held in their NRE or FCNR(B) accounts maintained with an Authorised Dealer or Authorised bank.
What happens to the underlying shares after IDR redemption for resident individuals?
Resident individuals must sell the underlying shares within 30 days from the date of conversion of IDRs into shares; they are not allowed to hold them beyond that period.