A recent change in know your customer norms by the Indian government is making it more difficult for NRI investment flow to reach the local markets.
Non-resident Indians (NRIs) are struggling to invest in Indian stocks, bonds, mutual funds or other deposit schemes after the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CRSARSI) changed the requirements for verifying the identity of customers.
The authority recently announced that all existing and new investors, including NRIs, should furnish acceptable documents as proof of correspondence address as a measure to check money laundering and proxy investments to park unaccounted money.
Investors have been told that their applications will be rejected if the stipulated ‘adequate’ address proofs are not submitted.
Some banks and investment houses have already rejected applications, citing the new circular.
The CRSARSI, which is mandated to maintain and operate a system for registration of transactions of securitisation, asset reconstruction of financial assets and creation of security interest over property, has outlined a list of documents that can be submitted.
They include:
- Aadhaar card (national unique ID card),
- Passport,
- Driving licence,
- Voters Identity Card,
- National Population Register Letter,
- Latest telephone (landline only) bill,
- Latest electricity bill,
- Latest gas bill, or
- Letter of allotment of accommodation from employer issued by state or central government departments.
Interestingly, NRIs are not issued these documents.
And they can only provide telephone, electricity and gas bills, NRO/NRE bank statements or bank statements from their host countries.
According to the new circular; NRE/NRO bank account statements are not acceptable for address proof, and they have to submit an electricity bill or land phone bill bearing their name and address.
The system that had been followed up to now involved providing bank statements, passport copy and PAN card copy as ID proof for opening depository account for stock trading, share allotments, mutual funds and other investments.
Rejected applications
KV Shamsudheen, chairman of Pravasi Bandhu Charitable Trust, an NGO that addresses NRI issues, said that existing as well as new investors have been told that their applications are rejected for want of ‘adequate’ address proof.
Shamsudheen, who is also managing director of Barjeel Geojit Financial Services, has made representations to India’s finance minister, the Reserve Bank of India, and other authorities requesting reinstatement of the old system where bank statements and passport copy were accepted as address proof.
“Now that the authorities are insisting on utility bill or telephone bill as address proof as a means of KYC, NRIs are unable to apply for new investments or to maintain their present investment accounts.
“When an NRI invests in India he has to give a proof as part of the KYC requirement as required by the government of India. Till last month they have been furnishing NRE or NRO account bank statement (from India) or bank statement from their host countries,” he said.
Many NRIs either stay in shared accommodation or in living quarters provided by their employers.
Most do not have a telephone landline connection and, if there is one, the bill is issued in the name of the employer or the landlord.
At least 80% of NRIs use pre-paid mobile connections, for which bills are not issued. A large number of NRIs also use post-paid phones provided by their employers in whose names the bills are issued.
Misguided move
Now that the Indian stock markets are becoming attractive more NRI investors want to invest through mutual funds or directly.
But they are not able to do so.
This is a misguided move which will block investments worth millions by NRIs in the capital market, bonds and mutual funds.
“It seems the new rules are framed without proper homework or by not knowing the ground realities in the Gulf countries, where a large number of NRI investors live. Therefore we demand amendment to the rules to enable NRIs to invest in India without any hassle.
“Otherwise, India will be losing a big chunk of NRI investments which the country can ill-afford,” Shamsudheen said.
