New IDR rules to boost capital raising

On 22 July the Reserve Bank of India (RBI) further liberalized the norms for foreign companies to raise capital from the Indian market through the Indian depository receipts (IDR) route.

The concept of IDRs was first introduced in India in 2004 with the introduction of the Companies (Issue of Indian Depository Receipts) Rules, 2004 (IDR rules), by the Department of Company Affairs. The IDR rules were later amended in 2007. However, foreign exchange regulations in respect of the issue and redemption of IDRs were unclear. The recent notification by RBI seeks to remove this anomaly.

Issue of IDRs

The mechanism for the issuance of IDRs involves the issue of shares of a foreign company to an overseas custodian bank. The IDR rules require the overseas custodian bank to be a foreign bank having a place of business in India.

Amit Tambe is a partner at Trilegal in Mumbai where Namrata Sinha is an associate. Trilegal is a full service law firm that advises on corporate and commercial law in India and provides commercially oriented legal advice in relation to all sectors of the economy. The firm has offices in Delhi, Mumbai, Bangalore and Hyderabad and have over 80 lawyers, some with experience at law firms in the US, the UK and Japan.