Sahoo panel moots Bharat Depository Receipts framework to reboot IDRs

NEW DELHI: A panel appointed by the government has mooted creation of a Bharat Depository Receipts framework to reboot the largely-unsuccessful Indian depository regime and help the country emerge as a key international financial centre.

The committee headed by MS Sahoo, secretary, Institute of Company Secretaries of India, has suggested reforms in the framework of domestic depository receipts within the overall capital control regime.

“A vibrant domestic DR (depository receipts) market would have one additional positive impact upon the Indian economy through reduction of risk,” the report said. Depository receipts are instruments that have shares of debt as underlying assets that are held by a custodian.

The benefits of these underlying assets, capital gains or interest, accrue to the investor that holds the depository receipts. This is considered a good way of investing in a foreign country without actual presence there and helps issuers tap foreign investors.

In this case, Indian investors will get access to foreign issuers. The current regime launched in 2004 has not really taken off, with only Standard Chartered Plc issuing depository receipts in the country in 2009.

The committee has proposed that the complete gamut of securities available for issuance to foreign companies be brought under the Bharat Depository Receipts (BhDRs) framework.

The finance ministry will examine the panel’s recommendations along with Reserve Bank of India and Sebi, the two regulators concerned, an official statement said on Thursday.

A complete suite of BhDRs should be allowed to be issued and traded in India to make the Indian financial system more competitive, and to provide greater choice to Indian investors, the report has said. BhDRs will be issued on the back of permissible securities debt or equity issued by a company or otherwise, according to the report.

The Indian market should also allow trading of DRs issued or listed elsewhere, in addition to BhDRs, it has said. It has recommended creation of two ‘levels’ of BhDRs, with Level-I being restricted to sophisticated investors and Level-II being made available to all investors including Indian retail investors.