What changed
RBI introduced limited two-way fungibility for IDRs, allowing re-issuance only to the extent of IDRs redeemed or converted into underlying shares and sold. An overall cap of USD 5 billion for IDR capital raising by foreign companies in India was set, monitored by SEBI. This amends the earlier 2009 circular on IDR issuance.
What it means for you
Banks and AD Category-I dealers can now facilitate conversion of IDRs into equity shares and re-issue them, subject to the USD 5 billion aggregate cap. This enhances liquidity and flexibility for foreign companies raising capital in India via IDRs. Lenders must ensure compliance with SEBI and RBI guidelines on issuance, redemption, and fungibility.
What you must do
- Update internal processes to handle limited two-way fungibility for IDRs, including conversion and re-issuance tracking.
- Monitor the USD 5 billion aggregate cap for IDR capital raising, as reported by SEBI.
- Advise customers on the conditions for IDR conversion and re-issuance per the 2009 circular and SEBI regulations.
- Ensure compliance with FEMA and other applicable laws when processing IDR transactions.
Who it affects
AD Category-I banks, Foreign companies issuing IDRs in India, Investors holding IDRs
What is the USD 5 billion cap for IDRs?
It is an overall limit on capital raised by foreign companies through IDR issuance in Indian markets, monitored by SEBI, similar to caps on FII debt investments.
Can IDRs be freely converted into shares?
Conversion is allowed under limited two-way fungibility, subject to conditions in the 2009 circular (paras 6 and 7) and SEBI regulations. Re-issuance is only for redeemed/converted IDRs.
Do banks need to report IDR transactions?
Yes, banks must follow RBI and SEBI reporting guidelines. The circular does not specify new reporting forms but requires compliance with existing regulations.