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QFI Regime: Will It Work?
23 Jun 2012 11:20 AM
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The Qualified Financial Investor route was opened up last year to facilitate foreign investment in Indian mutual funds schemes. Since then, the QFI has been widened, tweaked and guideline and today foreign non-institutional investors or QFIs can, for the first time, invest in Indian mutual funds, equity and listed debt. Thats sounds nice; doesnt it? A whole new class of investors to help companies raise funds, deepen our equity and debt markets, give mutual fund performance- a much-needed! But is it as simple as it sounds? Today we examine the QFI concept and process design for ease of use and attractiveness - to do that I have with me Anand Rengarajan, Director & Head of Direct Securities Services India at Deutsche Bank. Anand accompanied the government on QFI roadshows in the Middle East last week- so hopefully he has all the answers to our many questions. Also with me Bobby Parikh, Managing Partner at BMR and he manages its financial services industry practice. In Delhi - Pratibha Jain, Head of Nishith Desai Associates Delhi practice and from London, Martin Hattrell, Partner, Slaughter & May.

Doshi: This opens up a doorway for individual foreign investors, for companies who want to invest in India to come and directly invest in Indias secondary markets, equity and listed corporate debt and through mutual funds as well. Can you tell me the broad categories of investors that you are hoping India will attract through the QFI scheme and do you see those investors, erstwhile P-Note investors, those coming through the FII sub-account route, those investing on the Singapore stock exchange trying to get some India exposure, all of them wanting to come through this route?

Rengarajan: We already have four existing routes for investors to get into India. The one very common everybody knows is the FIIs, the FDI and we can look at ECB as well as part of it but we will leave that for the moment and we now have the new one which is the QFI. This is meantto compliment those three, its not meant to replace either of them because the objective is to get fresh new flows into India, not change existing flows. So with that objective in mind those who are outside of those who are currently invested in India- so if you talk about those who do not qualify for FIIs today - individuals for sure and again I normally would like to break them into two categories because there is a bit of an analysis on that as well. You talk about pure retail individuals and the high net worth individuals and outside of that two big segments, which have shown interest in the past and they are all quite excited to hear about the new QFIs, the family trust offices who would never like to be broad based (Interrupted)

Doshi: HNI linked to some extent, the family offices?

Rengarajan: Yes and the last category I would call is the corporate, who always had fair bit of interest and now this gives them an opportunity to get into the market. So these are basically(Interrupted)

Doshi: So are you saying that those who come through P-Notes which are not individuals because I am told individuals cannot sign up through P-Notes or cannot invest via P-Notes or those who come through FII sub-accounts will not be interested in these categories. They do not overlap or they do overlap. How will it work?

Rengarajan: First of all the regulation states that it is mutually exclusive; a QFI has to be mutually exclusive to the FII. So if somebody is already in FII, why would he(Interrupted)

Doshi: No, but if somebody is not an FII but is a financial institution investing via P-Notes or investing via FII sub-account, would they be allowed to come through QFI?

Rengarajan: The will but the question to ask is what does the P-Note guy does today. So besides listed equity which is common for both, he also does a lot of structured products which is not permissible for a QFI. So QFI, at this point in time, is only restricted with mutual fundwhich anyway the P-Note doesnt invest in. Equity yes, to some extent; corporate bond yes, to some extent but they also do a lot of structured products, they do a lot of things on the Futures & Options (F&O) which is not permissible for QFIs.

Doshi: You are looking mostly at individuals, family offices and maybe co-operations- those co-operations that were not already coming through the P-Note or the FII sub-account route might now want to come through the QFI route, correct?

Rengarajan: Yes.

Doshi: What do you think that is opening up a whole new category of investors and bringing them to India?

Parikh: I do not know the size of the addressable market in a manner of speaking but it certainly does open up a bunch of potential investors and the family offices and the wealth management clients of large wealth managers will be people who would have an ability to invest in Indian securities which they didnt have so far and it might have been difficult for them to qualify being P-Note holders and therefore they wouldnt have the indirect access either and so to that extent, this does create an avenue and a route or an opening for a set of investors to come through who might not otherwise have been able to come through. At a broader level, it opens up for all corporate and opens up for all individuals and so in a sense the market is huge but I do not know whether its going to be of interest to all. So I think the more immediate objective or the more immediate target would be the high net worth individuals and the family offices.

Doshi: Would you agree with that? Who do you think would be interested to invest in India -the current macro and market situation aside? Who do you think would be interested to invest in India through this qualified financial investor route?

Hattrell: I would have thought that the high net worth individuals and the family offices would find investments in Indian securities very interesting. Growth ishard to achieve at the moment in Western economies and stock markets and so it will, I am sure, pave interest. Whether corporate would do it if they were able to invest through another route, I am not so sure. But anyone who cannot go through another route to invest in Indian securities, I am sure will find this of some interest.

Doshi: So we have narrowed it down to individual retail investors or individual high net worth investors as the beginning addressable audience?

Hattrell: Yes, its likely.

Doshi: Look at the process that has been laid out under this QFI scheme and tell me whether you think this category of immediately addressable investors will be keen to come to India using this particular process. Does it provide ease of use when somebody is taking a risk to invest in a foreign market?

Jain: I think what others have said is right. Immediately based on the current regulations, you are probably looking at individuals or some corporate who havent yet registered as FIIs and find this easier because there is still a lot of cleaning up for the government to do in terms of bringing the regulations at par with the FII regulation; especially we are going to talk later about tax. But I am hoping that in the long run, this is not just about creating another class or another route of investors but hopefully this is the path we are going down for foreign investors to invest in the country i.e. you do not have to register with the regulator and go through the lengthy process but you can actually do a bit of self regulation which is through an self-regulatory organisation (SRO) or an intermediary, meet the requirements and we can streamline the process for a foreign investor to come into India. So just on the hope that in the long-term this is where the government is going. In the short run, I think they are trying very hard to make this route a feasible route, comfortable route for the investors to come in through. Know your customer (KYC)requirement in India is always painful. Its procedural, you have to meet the procedural requirement rather than the substantive requirement and whenever we talk to foreign investors, they find it the most painful giving their personal details, passport copies, getting a Pan, going through in person verification though in the latest FAQ they have clarified that for foreign officers they would consider attestations and going through notary publics or courts in foreign jurisdictions but its still cumbersome process and you compare that for at least a category of an investor who can come through the P-Note route or have exposure to the Indian market. They would rather stay outside and not have to go through this process and getting a pan in India on doing this, in person verification process. It will be difficult to convince those(Interrupted)

Doshi: Is that the concern that you met with when you were touring the Gulf or talking about this though I do not know how many Gulf investors come through P-Note route but if you were to compare the ease of coming through the P-Note route though there is a tax cloud on it now and the ease or the lack of it coming through the QFI route, then do you think that the QFI route will be discouraging to some extent?

Rengarajan: I think what Pratibha mentioned was actually partially right because although they have this clarification, you are expecting your officers to be there. Not all of them have foreign officers everywhere where you could do this fairly easily and going through getting a notarised etc is actually a very painful exercise and we have seen that (Interrupted)

Doshi: So you are admitting that KYC process is a pain?

Rengarajan: Its difficult for those who do not have the branches in some of these foreign locations. If you have a branch, then obviously you have somebody who can take care of that. It depends on whether you have a branch there or not whether the qualified depository participant (QDP)has a branch there or not. So thats exactly where it is but the road shows (Interrupted)

Doshi: My question is ease of process?

Rengarajan: The entire premise of QFI is supposed to be single stop window. So as mentioned - no SEBI approval, everything stops with the QDP.

Doshi: Thats right but even if it stops with QDP and its a single window process, is the KYC too cumbersome?

Rengarajan: KYC is very similar for FIIs, very similar for this.

Doshi: But FIIs are institutional investors. You have narrowed the immediately addressable category down to individual and high net worth individuals, right? So retail and high net worth individuals. For an institutional investor to go through a painful paperwork process is different as opposed to an individual guy having to do it, right? Smaller amounts of money, you do not want to go through that cost just to invest in a foreign country where the risks are anyways difficult to deal with. How did you answer all of these questions in your road shows?

Rengarajan: The questions were more around is this the right time and on current apprehension and not so much on the process side. They all assumed that it will be a single window process that works quite well. There werent any questions on KYC at that point in time but they are aware of the fact that.. (Interrupted)

Doshi: What do they know. They assumed its a single window process that will work well.

Rengarajan: But there are certain issues on KYC, no doubt.

Doshi: Martin you have been through the guidelines that have been set out. Do you believe that if the immediately addressable category of investors is individual retail investors and individual high net worth investors, then these KYC norms or process of coming into India via the QFI route is one thats easy and attractive?

Hattrell: I think its not easy and it will be a disincentive to some but for those who are really interested, they ought to be able to organizethemselves to go through the customer procedures and not only downside but(interrupted)

Doshi: Can you elaborate for me why you think its not easy?

Hattrell: Well its just administratively difficult, there are things which need to be organized, you need to produce evidence of identity and that sort of thing. People can do it, its not difficult but its disincentive that will put some people off. They will not get it organized. Those who have brokers who can organize it for them or..(Interrupted)

Doshi: What is the option that a country like India faces? You want to widen your markets, you want to bring in more investors into your markets, there has to be some minimum paper work. Can you compare this with lets say how other countries go about trapping foreign investors and in that comparison do you think India comes off looking poor because there is no doing away with paper work; no matter how much we dont like it.

Hattrell: I think you are right, I dont think one can entirely dispense with it. For brokers who are active in the markets to be able to represent their clients, they need to know who they are and enough about them to act in their interest. So you are right, these procedures have to be gone through but I dont think anyone could pretend they will be welcome, I am afraid they won't be. I am not saying I was.

Doshi: Pratibha you want to comment?

Jain: I was just going to mention I think one thing- when you compare India with the other jurisdictions in terms of its KYC norms, we have a very rule based system and there are a lot of developed countries that have a principle based system. So you may tell your intermediately, in this case the QDP, that you ensure that you know your customer. You ensure that you know the identity, you know who the ultimate beneficial owner is, you get some form of identification, you get the necessary details. So now whether that has to be the passport, it has to be something thats notarized.All that procedural stuff and 7 multiple copies in different colors that we have, I think those, there is a strong need and this is not just purely for this route, it becomes more important for this route because as we said you are dealing with individuals. But that whole process needs to be streamlined in India and there is a huge movement by the industry, there is discussion with the regulators to get that done and the speed of this needs to be improved.

Doshi: Deutsche Bank is a QDP as well, a Qualified Depository Participant (QDP) and a QFI can come to India only through a QDP and give instructions for trade purposes through the QDP even if they have a preferred set of brokers correct?

Rengarajan: Thats right; yes.

Doshi: Through one non-interest barring rupee account. Thats the process. You are a QDP, how do you deal with the fact that the KYC norms are painful, they are difficult and the burden of this is on the QDP. So the QDP is going to have to deal with 100s if not 1000s or millions of individual investors making sure that all their bonafides are in place and yet sell it to them whereby it doesnt sound like a very onerous process.

Rengarajan: There have been a lot of representations made on the KYC process as Pratibha is mentioning that we have also asked for lot of changes; some of which have already been mentioned. They may not be in paper but for example changing a form which is a combined form for KYC and PAN application so that you have to just fill up one form. So there will be some changes.

Doshi: Do they all need to have PAN numbers?

Rengarajan: Yes the QFI PAN number is mandatory.

Doshi: Thats a non starter, that means they have to apply for a PAN number.

Rengarajan: Yes; so thats something which is there which has not changed; so that will remain.

Doshi: Do you agree with that? Do you really think people are going to come in if the first thing they have to do is apply for a PAN numberin India? Look at the category you are talking to, they are not institutions necessarily.

Rengarajan: I probably want to reuse Martins statement here. There are quite a lot of people who are interested to be a part of the India story and therefore they have already started this process. They are in the process of already applying so there is already interest.

Doshi: Okay lets assume that the investor is willing to go through the hoops. As the QDP, are you comfortable with having to bear the burden of KYC?

Rengarajan: We have to do it. We are doing it for the FII, well have to do it for them. So well have to go through their process. There are some unanswered questions in terms of the definition of UBO, for example, its Ultimate Beneficiary Ownership. But anyway they are not allowing opaque structures very clearly as has been clarified by the FAQs. Clearly opaque structures are not being allowed, permissible. So if you are looking at simple family trust offices, they will have to go through this process of sharing all the documentation and the stipulated documents that are required as part of the KYC. And PAN is a part of that process. You have to apply for PAN. Its a one time activity but they have to. They are trying to remove the obligation to file a return but then if you want to do something, you will still have to file a return. So that is the clarification on the tax part which is still awaited.

Doshi: I am very glad you brought it there. Now let me go to Bobby with this. Bobby two questions to you- first everything that you have heard on ease of process so far. If you are really interested in India, would you run through all these hoops to come here, individual investors we are talking about?

Parikh: The point which Pratibha made in terms of the policy and the evolution of the policy and where this is likely to go. The whole QFI stuff actually goes back in my mind to a report which was published a couple of years ago whichwas coincidentally -UK Sinha was the chair of that committee -and that committee was on portfolio flows and the thinking that that committee I happened to be a part of that committee at that time. The thinking was that we should really open up portfolio investments to everybody. So there should be no SEBI registration whatsoever. There should be no registration; it should be open.

Doshi: A bit like what Pratibha mentioned right at the beginning?

Parikh: Exactly and so the QFI term was actually part of that report and that QFI was meant to replace everything that was there including FIIs. So there should be no FII and anybody who invests is QFI and that can be anyone; that has to be there. You need to have some KYC I think. (Interrupted)

Doshi: Some is fine. KYC which includes PAN cards and potentially filling returns is not comfortable.

Parikh: So that gets into an aspect of taxation on portfolio investment.

Doshi: Please tell me what do you think of the fact that we still dont know what the tax treatment is going to be? What do you imagine it could be?

Parikh: One is that at an overall level many countries in the world actually exempt portfolio investments from tax in that country.

Doshi: But thats not what the government is talking about in this case?

Parikh: No. So we are not doing that but that was one of the thoughts that was discussed and debated in the committee- to say that and chucked out of the window. So capital gains should not apply to foreign investors who are at portfolio level. So portfolio being defined as 10% or whatever is the cutoff that the government wants to use and there should be no tax in which case we would have done away with PAN, fillings, and all of that stuff. Now for whatever reason we are not going down that route, so tax will apply. Now the question is what clarifications come out from the government in terms of taxation(Interrupted)

Doshi: So one line of thought is thatthey will get parity with FIIs?

Parikh: That is on the tax rates. (Interrupted)

Doshi: Yes so thats zero percent long term and 15% short term.

Parikh: Thats right; which actually is the base rate which applies to anybody that invests on the market. So on listed securities its 0% and 15% for everyone. So I dont know that there is a lack of clarity as far as equity is concerned. On net investments, which is a window which has just been opened, some clarification will help because if there is no clarification, the default rates that will apply will be higher than what applies to FIIs. So parity with FIIs for mutual fund investment or for equity investments already exists because the rates are codified and the act was actually agnostic to category (Interrupted)

Doshi: So that was a big problem?

Parikh: That is not a big problem.

Doshi: Okay but now lets look at it from this point of view- you have got P-Note investors or FII sub-account investors who were potentially not paying tax earlier. They may now have to because the GAAR cloud is hanging over all investments using tax haven routes lets say. Would they look at QFI more favorably now because even though there lots of extra paper work and KYC, etc, you might get tax clarity, tax certainty and anyways you couldnt continue doing P-Note investments with zero tax because thats slowly going away. So would it then equalize the opportunity?

Parikh: I am not so sure because I think the P-Note investors, there are 2-3 different elements that drive them to choose that structure versus going through directly. So assume that there is a P-Note investor who could also qualify as an FII or could have qualified as an FII and therefore that option was always available to him to invest directly.

Doshi: So now he can choose either the FII route or the QFI route? And the taxes are same in both so it wouldnt matter to him.

Parikh: Thats right. He will then choose the FII route(Interrupted)

Doshi: Not the QFI, he actually can't use the QFI because if he is a financial institution he can't come through QFI right?

Parikh: No there is nothing, its just that you can(interrupted)

Doshi: You can come as long as you are coming through the FII.

Rengarajan: What they are restricting is the asset classes that they are eligible to invest in

Parikh: So they will prefer assume that the P-Note investors are the most sophisticated investors so they will want the F&Os and they will want all of that stuff which is not available to a QFI; so logically they will prefer the FII to that. Two-three things that happened with the P-Note holders- one is of course tax. So thats there today or thats been available so far that may or may not be available going forward. So may be tax drops away as a factor to consider. The other issue is the operating ease that I just need my broker, I dont need to get involved with registration. Even if I am a sophisticated investor and I have the wherewithal and the back office to be able to deal with that(interrupted)

Doshi: But that ease doesnt exist in this route?

Parikh: No here I have to then deal with the registration. So there is that thing and beyond that I think for the P-Note holders, the brokers actually provide them with other services. So there might be funding support, all those kind of things which would not be available. So the reasons why people will prefer P-Note route to direct routes will be for combination of all of these factors. So if one of the things drops away, there may still be other considerations which may force them to stick with P-Notes.

Doshi: How important do you think the tax treatment is going to be when its determining the kind of people that want to come to India via QFI route or determining the success of this route?

Hattrell: I think it is important. The return on any investment is a key factor in the investment decision and iftax is going to be payable on the return on the investment, so it will be important that overseas investors have some sort of double tax treaty from which they can benefit so that they see that they are not paying double tax - that will be a disincentive but it ultimately will just effect the return on the investment and whether people decide that these are good investments to make.

Doshi: Your views on the tax aspect of the ease of process when it comes to QFI?

Jain: I think if you are comparing, then one of the objectives is to get the P-Note investors to come directly into the Indian market and QFI is one way of incentivising them. Then a) registering India through a Pan we have had foreign investors directly tell us that that makes some very uncomfortable because that exposes them to the Indian tax authorities which right now do not have the best reputation and b) you got to make sure that there is clarity and this is again not specific to QFI route but there is clarity on how we are going to treat our tax treaties and if we are getting that benefit or not. GAAR is right now postponed for a year, so you wont see P-Note investors jumping towards QFI route till there is clarity to that effect.

Doshi: What do you make of how big a hurdle the tax aspect is going to pose when it comes to the success of the QFIs claim?

Rengarajan: When this was announced, all the QDPs wanted unilaterally Pan Card as a condition to be removed but that fell through and they said the Pan is mandatory but we could do with a filing of return because Pan Card filing is mandatory and we looked at various options in terms of giving solutions to the people at helm to see if we could make some simplified situations. Can we have a simplified tax structure? Remove all the ambiguity like Bobby was mentioning. All of which takes tax - so the best they could do is address some of the other concerns for e.g. today if I have to still pay compared to an FII, can I offset mycapital gains loss with earlier capital gains and so on and so forth. All these are left pending. How long can it be netted within the matter of a year or within a month. Basically those are the questions which are awaited to be clarified which is what we are(Interrupted)

Doshi: Even the tax rates have not been decided.

Rengarajan: Tax rates have been decided. Tax rate at this point in time is very similar to the FII structure which Bobby mentioned.

Doshi: Very similar or same?

Rengarajan: Same, its exactly the same.

Doshi: So it going to be zero and 15%?

Rengarajan: You will not have arbitrage opportunity there between QFI and FII because there again you will see people shifting; so that is not possible because its exactly the same but what is not clarified is how do you carry forward and what is the kind of treatment - can we net off and stuff like that; so that is a waiting clarification at this point in time.

Doshi: Important questions that need answers to?

Parikh: I am not sure why there should be a doubt about carry forward or set-off because thats general income tax provisions and those should be available to every category of taxpayer so I do not know if there is any particular reason why QFIs would not have that ability while it available generally to everyone.

Rengarajan: It was debated in the last time as well (Interrupted)

Doshi: Maybe they just want it in writing because like all of us know the degree of faith in the Indian tax department right now does not run very high. So people maybe just wanted out there in a notification form?

Rengarajan: The answer to that is if you are obviating the need for filing a return, then that question comes up.

Paikh: So if you want to simplify it and you pay the tax, you do not file the returns; matter is over. Then the whole business about treaty exemption or not or treaty relief or not becomes an issue because if you are going to claim that,then someone will want to look at it to see whether you are eligible to claim it or not. If you are going to setoff losses or do whatever, then someone needs to verify whether you are doing it accurately, properly or not then the filing obligation comes along with that. So if you want to do away with filing obligations and I think you have to also give up some of these things. You say I am going to pay tax and this is a tax. I get certainty but I do not get some of these things (Interrupted)

Doshi: On the tax front, the other question I want to put to you as a QDP now, you are going to be the tax agent for the QFI. The QDP is going to make sure that the QFI has toed the tax line in India. So first you have got the KYC burden on your right shoulder and then the tax agent burden on your left shoulder and yet you have got 28 institutions that signed up as QDPs in this country. Why is that? Are you not uncomfortable about the fact that you have a lot many lines to toe?

Rengarajan: Most of the QDPs have a concern on that part.

Doshi: And yet they have all signed up?

Rengarajan: The definition of what our role as tax agent is being discussed. If you look at what we do for FII today, we are not a tax agent.

Doshi: You do nothing regarding the tax (Interrupted)

Rengarajan: All that we do is once we get a certificate from the tax consultants, when we see a certificate; our responsibility is ensured that we have deducted the money that the CA certificate says to be deducted.

Doshi: Yes, but that is not going to be the case.

Rengarajan: We are going to continue that but we have an additional burden of being responsible for any reduction.

Doshi: Which means you have to make sure that number is right?

Rengarajan: Correct and taking an unlimited liability of that sort.

Doshi: And yet 28 institutions have signed up?

Rengarajan: There will be some clarification on that otherwise there will be a question ofhow do you weigh your risk and return here because your risk could be quite high if you take an unlimited tax liability risk and the risk gets little bit more quadrupled if you take we deal with a lot of clients where we maybe deducting something and normally you know how the tax assessment is done. Its done in a couple of years thereafter and contractual agreement with my client would have ceased since the client would not be my client. So how would I recourse to him. So that risk is there and we are currently in the process of debating the risk return at that point in time.

Doshi: You have heard some of the concerns, you have expressed some yourself, and we have a big tax question hanging over the QFI scheme. How do you assess the potential success of this and of India being able to attract a new breed of investors or maybe eventually migrating to a non-FII one single window foreign investor setup?

Hattrell: I am going to be a lawyer in answering that question. I think its too early to say. I think these tax questions have to be sorted out. I think there will be interest. There definitely will be interest but whether it will be enough to see a huge expansion of the investor base in India. I do not know. I am afraid.

Doshi: We are hoping this year and next that several government companies will come to the market for disinvestment process; several private companies need to come to the market to meet the 25% public shareholding threshold by the middle of next year. Do you think they can count on QFI interest as one way to raise money?

Jain: I think it will depend on how this progresses and how the government takes it to its logical conclusion in terms of all the stuff you have talked about. But also I think one thing that would help at least for the capital markets is if they can create another classification for- if you are looking at high net worth individuals coming in through this route, yu allow them to be classified as a qualifiedinstitutional buyer (QIB) or create a new classification..(Interrupted)

Doshi: They are not being allowed to be classified as QIB; so in effect that rules QIFs out from any QIP which is a qualified institutional placement or an IIP altogether?

Jain: Exactly and I think they are being cautious right now to see how this develops but I am hoping they will allow certain you can put thresholds like you have in the US. You can have high net worth individuals with certain amount of threshold, whatever few million dollars, rupees whatever threshold they want to put but put that threshold and allow a certain sophisticated classify net worth individuals to invest in the market. That will create a new class of investors for our corporate issuers.

Doshi: Are you saying then that they should be given QIB status?

Jain: I think with raising a certain amount of bar in terms of the minimum that their net worth should be or their investment, I think it would be a good category to create for investment into the Indian market because world over they are considered sophisticated investors after a certain level.

Doshi: What do you think both the success of this scheme and the opportunity they have?

Parikh: Just on this point then it has to be symmetrically available to Indian investors as well, so then the category should be high net worth investors as a category then why (Interrupted)

Doshi: Lets assume that it is going to happen- so that means they cannot invest in QIPs, they cannot invest in IPPs but they can go down or can participate in the OFS route. Do you think that companies can now count upon this new interest group of QFIs as one way to raise funds?

Parikh: I think we will have to wait and watch as to what the pickup on the scheme is at a general level and I think that if we just see how things have worked even up until now SEBI first announced the regulations in August of 2011. Two days within which the money must be sent outand all of those stuffs, so between August and the January, there is equity. So from only mutual funds, it was extended to equity, two days became five days.. (Interrupted)

Doshi: So what you are saying is the pace of improvement in the guidelines has been dramatic.

Parikh: So our general attitude towards relaxation of any sort of framework is to first engineer controls and difficulty into it which is fairly onerous and then slowly dilute that when you find that pickup is happening. So lets watch and see if it becomes attractive; then of course it becomes a source of capital for companies. But if the constraints are overwhelmingly greater than the attraction, then the source of capital may not be available.

Doshi: To sell to QFIs, those merchant bankers leading an issue, will need to have registration in those jurisdictions, right?

Rengarajan: You will have to await by the (Interrupted)

Doshi: So thats another additional complexity to be able to go out there and reach out to them?

Rengarajan: You will have to be governed by the regulations in the country.

Doshi: Essentially what we discovered in the last half an hour is that this is not as simple as it looks. What do you make of the response that you got in the Gulf and what are you hoping this will ultimately achieve?

Rengarajan: I think definitely its a welcome change to open up a new entry option, keep it very simple and single window and all those stuff. Notwithstanding the fact that there are some tweaks to be done despite major chunk which has already happened, we have seen lot of interest in the five countries where the road shows were held. In some countries for e.g. where you would normally not get 20-30 people, we have seen 75 people in the event. Interest levels are quite high and largely also because probably in Gulf, lot of these family trusts big wealthy people, normally have a fund manager which is normally an Indian- so there is a lot of Indianconnection and he is trying to push the India story as well. So we definitely see there will be some pickup but how much and how soon and in what timeframe, only time will tell but if the tax clarifications are released quite soon, I think we will see some good pickup.

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