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DEA plans to tighten the noose around Chinese FPIs

The Department of Economic Affairs (DEA) has drafted a proposal to sharpen focus on Chinese FPIs by including mainland China & Hong Kong in Securities and Exchange Board of India’s (Sebi’s) list of high-risk jurisdictions. According to the current criteria, an investment belongs to high-risk jurisdiction if the incoming funds  are not compliant with the regulations laid down by the Financial Action Task Force, or FATF.

While there are only 16 registered FPIs from mainland China in the country at present, Hong Kong has 111 registered FPIs investing in Indian markets. Once FPIs from China & Hong Kong are incorporated in the list, they will attract greater scrutiny from regulators and those providing custodial services.

This move is the aftermath of the coronavirus pandemic and subsequent border skirmishes between the two neighbours. Another development that inspired this move was that last month, Housing Development Finance Corp. Ltd said the People’s Bank of China (PBOC) had raised its stake in the Indian lender to 1.01% from 0.8% in the March quarter through open market purchases. This gave birth to concerns about foreign acquisitions of strategically important Indian companies in a depressed market.