RBI Regulations

An overview of the NRI Portfolio Investment Scheme

There had been always been complaints from the NRI community regarding their inability to purchase securities at the Indian Stock market. In order to resolve this problem, the Reserve Bank of India came out with a NRI Portfolio Investment Scheme to enable them to make investment in the Indian stock market through a recognized stock exchange in India.  

What is meant by NRI portfolio investment scheme?

Non-Resident Indian (NRI) portfolio investment scheme is a scheme of Reserve bank of India (RBI) that enables NRIs and Overseas Corporate Bodies (OCBs) to purchase and sell shares and convertible debentures of Indian companies on a recognised stock exchange by routing such purchase or sale transactions through their NRI Savings Account with a designated bank branch.

What is a PIS Account?  

As per section 3 of the Foreign Exchange Management Act 2000, NRIs are allowed to buy and sell shares along with the convertible debentures of companies incorporated in India through a recognised stock exchange by directing these transactions through account with a designated bank branch. The PIS investment scheme was designed by the RBI to enable the NRIs to make such investments.  

Features of NRI portfolio investment scheme

Following are some of the features of the NRI Portfolio Investment Scheme:

1. Opening of a bank account

If an NRI wishes to participate in the process of purchase and sale of shares through a recognised stock exchange, then that NRI needs to open a bank account at a designated bank which has a global presence.

• Investments of NRIs

It must be made clear that investments made by the NRIs can be done both through a repatriation basis or a non-repatriation basis.

1. In case an NRI wants to make portfolio investment through a repatriation channel, then such NRI needs to open a Non-Resident External (NRE) Rupee account for foreign inward remittances from an overseas account.
2. In case an NRI wants to make portfolio investment through a non-repatriation channel, then such NRI needs to open a Non-Resident Ordinary (NR0) account for foreign inward remittances from an overseas account.

Facilities provided by NRI portfolio investment scheme

Following are the facilities offered by the NRI Portfolio Investment Scheme:

• NRI can invest in shares and bonds listed on the recognized stock exchanges.
• NRI can make investment in futures and options which are traded through accepted stock exchanges. Such trading is subject to RBI’s regulatory limits and the trades can be executed on a non-repatriation basis only.
• A ceiling limit has been set on the number of particular shares in the NRI’s portfolio investment. For example, for investments made by the NRI under repatriation account, the ceiling on investment has been set up to 5 per cent of the total paid-up capital of a company. Further, the aggregate investment made by an NRI in a specific share cannot exceed 10 percent of the paid-up capital of the company. However, if RBI decides through a special resolution, to raise this ceiling limit, then the cap reach up to 24 per cent.
• In case a person is a resident Indian and wants to convert the status to that of an NRI, then such NRI can continue to hold securities on a non-repatriation basis.
• It is mandatory for an NRI to allocate only one designated bank to channel their transactions under the portfolio investment scheme account for NRO and NRE. NRIs cannot maintain multiple accounts with different banks
• Securities purchased by the NRIs from the stock exchange under the scheme cannot be transferred to any person by way of sale under private arrangement or by gift to a person resident in Indian or outside India without the prior approval of RBI.

Restrictions under NRI portfolio investment scheme

Following are some of the restrictions that NRI Portfolio Investment Scheme has put on the NRIs:

• NRI have been restrained from investing in any company that has been engaged in the business of agricultural or plantation activities, chit funds, real estate business related to farmland or agriculture, construction of farmhouses etc.
• A joint account cannot be opened under the NRI Portfolio Investment Scheme. RBI mandates that an NRI should have a separate bank account for Scheme.
• Repatriation benefits have not been extended from the investments made in the exchange traded derivative contracts that are approved by the Securities and Exchange Board of India (SEBI) from time to time of rupee funds.
• An NRI has not been barred from holding an NRO or NRE account once his/ her status changes to a resident Indian. In case such a change takes place, such person needs to inform the authorized branch and set up a new resident demat account. Such person cannot continue investing through the portfolio investment scheme account.
• NRIs cannot sell the shares/ convertible debentures purchased without the same settlement cycle i.e. they cannot sell without taking the delivery of the shares/ convertible debentures purchased. Short selling and intra-day selling of shares is not permitted under NRI Portfolio Investment Scheme.

Conclusion 

RBI with the introduction of NRI Portfolio Investment Scheme^[1] has tried to resolve the problem where they were not able to make investments in Indian securities. However, RBI has not given freehand and prescribed limits to the amount of investments that can be made by the NRIs to protect the stock market from malpractices like short selling.  

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