NRIs To Be Barred from Using P-Notes : Black Money Curb

Market regulator, Securities and Exchange Board of India(SEBI) , will formally bar Indians, non-resident Indians and entities beneficially owned by NRIs from using participatory notes(P-Notes) through its new amendment in its regulation.

P-Notes are derivative instruments issued by foreign institutional investors(FII) to overseas clients who want to invest in Indian securities, without registering with SEBI for legitimate or dubious reasons.

P-Notes are not issued in India, rather these are issued by an India registered FII to client, underlining that securities are held on behalf of the client by them.

The Game

Increasingly, ‘foreign investors’ who invest in Indian through P-Notes are props for Indian and NRI entities.

This happens because the actual end user could be different from the first P-Note buyer. Savvy tax evaders thus use this route to deploy their black money into Indian securities.

Roped In

To check this trend, SEBI will amend the Foreign Portfolio Investors regulations and ban Indians and NRI’s from becoming beneficial owners of P-Notes.

The move is expected to restrict round-tripping of funds to evade taxes and launder black money.

A decision to this effect will be taken at SEBI’s upcoming board meet on April 26.

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