Sebi, in its board meeting in Mumbai on Saturday, will also consider several other measures, such as changing the norms for debt limit for foreign investors, and collapsing various categories of investors such as foreign institutional investors, foreign venture capital investors and non-resident Indians into a single class of investors called qualified financial investors (QFI), said a person familiar with the development.
At present, there are instances of FII funds being allowed from a particular country, but QFIs from the same country not being allowed to invest in the Indian stock markets. By merging these categories, Sebi hopes to do away with ambiguity.
The board is likely to suggest measures to ensure the compliance of minimum public shareholding of 25%. Promoters who own more than 75% will have to reduce holdings by June 2013. The regulator may also indicate penalties or other punitive action in case of non-compliance.
The potential penalties will be discussed at Saturday's meeting. As of June 2012, as many as 216 companies, including 16 public sector undertakings, have less than 25% public shareholding.
Individuals from 45 countries are currently eligible to invest in India under the QFI framework. This list will now be expanded to 52 countries, and residents of seven countries - Argentina, South Korea, Turkey, Kuwait, Qatar, Ireland and Latvia - will be allowed to invest through the QFI route. Sebi will enter into bilateral agreements with the regulators in these countries.
As per existing norms, the category of QFIs includes individuals, groups or associations and residents (not FIIs) of countries that are members of the Financial Action Task Force or signatories to the International Organisation of Securities Commission. QFIs have a separate limit of $1 billion for investment in corporate debt securities and debt schemes of Indian mutual funds. They can also invest up to $3 billion in infrastructure debt, which is part of the overall cap of $45 billion that foreign investors can invest annually in India's debt market.
The government had formed a working group in November 2009 on foreign investments in India to look into various types of foreign fund flows that were taking advantage of arbitrage opportunities across respective standalone regulations. The group has recommended the dissolution of various categories of investors into QFI - a single window for portfolio investment in India that does not distinguish between investors. Based on these suggestions, the regulator is preparing a draft guideline for the government's consideration.