Non-resident Indians (NRIs) frequently express frustration with the challenges they face when attempting to invest in their home country, citing obstacles such as the intricate account opening procedures, notarization requirements, and the associated international courier expenses.
Nithin Kamath’s analogy, shared on X (formerly Twitter), drawing parallels between the NRI account opening process and the pre-digital era of retail broking, underscores the cumbersome and outdated nature of the current procedure. The insistence on physical forms, multiple signatures, and prolonged timelines needlessly complicate the process for NRIs looking to open an account and invest in India. Kamath is the Founder and CEO of Zerodha.
The current generation is blissfully ignorant of the manual account opening process in the pre-digital era of retail broking. Investors were required to complete paper forms, submit multiple document copies, and personally visit a broker’s office to sign and submit the paperwork. This procedure was frequently time-consuming and inconvenient, particularly for investors residing at a distance from a broker’s office.
Emphasizing the severity of the obstacles encountered by NRIs in their investment endeavours in India, Kamath underscores the striking similarity between the current NRI account opening process and the pre-digital era of retail broking. NRIs still contend with the necessity of completing physical forms, supplying multiple document copies, and personally visiting a bank or brokerage firm to sign and submit paperwork. This procedure can be particularly protracted and inconvenient for NRIs residing abroad.
In a LinkedIn post, Kamath shared, “NRI account opening reminds me of how retail broking worked before it became digital, thanks to Aadhaar, e-Sign, and Digilocker. Physical applications, couriers back & forth, ~30+ signatures, & more reasons to drop off.”
The intricacies of the NRI account opening procedure serve as a significant deterrent for NRIs contemplating investments in India. The perceived difficulty and time-consuming nature of the account opening process may cause hesitation among NRIs, potentially causing them to miss out on valuable investment opportunities in the country.
Presently, the onboarding procedure encompasses KYC verification and authorization through a signature. Tagging the Finance Ministry’s official handle, Kamath tweeted, “An NRI with an NRE/NRO bank account will already have the updated KYC, accessible to other financial intermediaries through CKYC. NRIs may not have an Aadhaar or one linked to an Indian mobile number to e-sign. Now that we are allowing UPI for NRIs mapped to their international numbers, what if we use that to authorize (e-sign) and open a trading and demat account online?”
How do NRIs invest in Indian stocks?
At present, Non-Resident Indians (NRIs) have two primary choices for investing in India: The Portfolio Investment Scheme (PIS) and the non-PIS route. Kamath shared the same on X too.
PIS Route: The PIS route stands out as a more flexible and widely preferred choice for NRIs. It grants NRIs the ability to invest in a broader spectrum of Indian securities, encompassing stocks, bonds, mutual funds, and real estate. Additionally, NRIs can leverage both NRE and NRO bank accounts when investing through the PIS route.
Non-PIS Route: The non-PIS route proves to be a more constrained choice for NRIs. It confines NRIs to invest in a restricted set of Indian securities, namely stocks and mutual funds. Moreover, NRIs can exclusively utilize NRO bank accounts for investments through the non-PIS route.
Kamath rued on LinkedIn, “Hopefully, NRI onboarding will become easier. Apart from helping build on the India story globally, it can also help the rupee” while sharing his concern on X, “NRIs are among the wealthiest outside India. We need to make it easy for them to invest back home.”
Excess foreign control is a concern
The limitations on shareholding imposed on NRIs within foreign portfolio investors (FPIs) have raised apprehensions among numerous investors. These constraints, capping an individual NRI’s maximum shareholding at 25 per cent and restricting the overall NRI shareholding to 49 per cent, aim to safeguard Indian companies from excessive foreign influence. Nevertheless, they have faced criticism for potentially dissuading NRI investments in the Indian stock market.
The rigorous regulations dissuade NRIs from making any investments in India. Calls have emerged in recent years urging the Indian government to ease the shareholding restrictions imposed on NRIs in FPIs. However, concerns persist about the potential implications of relaxing these restrictions.
The Indian government must meticulously assess the advantages and disadvantages of easing the shareholding restrictions for NRIs in FPIs. While there is a compelling argument for implementing certain modifications, the government must proceed cautiously to avoid compromising the country’s economic interests.
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Updated: 17 Nov 2023, 09:12 AM IST