Mumbai: International Financial Services Centres Authority (IFSCA), the regulatory body for the IFSC-GIFT City in Gujarat, has allowed non-banking entities like alternate investment funds and other fund managers to issue overseas derivative instruments from IFSC. ODIs are popularly known as P-Notes or participatory notes which are issued by foreign funds operating in India to their clients who prefer to remain anonymous.
About a decade ago, P-Notes had earned a bad name for being opaque since a lot of it was used to route funds of suspect origin. At times, P-Notes-based selling in the Indian market had caused market crashes. Over the years, however, P-Notes have been brought under Sebi’s strict monitoring mechanism and are not as opaque about their actual owners as they used to be.
After FY24 Budget, banks in IFSC were allowed to issue ODIs to clients, provided such instruments were based on Indian assets. “(It) has now been decided to permit IFSCA registered non-bank entities, registered with Sebi as FPIs, to issue (ODIs) with Indian securities as underlying, in GIFT-IFSC,” the circular from IFSCA said.
Practitioners in the field said that allowing non-banks to also issue ODIs is a significant step in developing IFSC as an international financial hub. And the next logical step should be to bring in some changes to the taxation structure for such funds to attract international clients to invest in India through the IFSC route.
“This decision signifies a major enhancement in the operational scope of GIFT-IFSC. By enabling IFSC registered non-bank entities to issue ODIs, IFSCA is not just adhering to international norms but also paving the way for a diversified and robust financial ecosystem,” said Tushar Sachade, partner, Price Waterhouse.
“This initiative is poised to attract a broader spectrum of global investors, thereby enhancing market liquidity,” Sachade said. This will boost participation of foreign investors in capital market, said Sunil Badala, partner & national head (BFSI and tax), KPMG in India. This decision has potential to “create a level playing field with ODI issuing IFSC banking units and FPIs in overseas jurisdiction,” Badala said. “This will propel GIFT City towards becoming a leading financial hub.” However, banks will still enjoy some taxation benefits compared to non-banks.
