Zerodha’s Nithin Kamath bats for streamlining of regulations on NRI investments in India. Details here
Non-Resident Indians (NRIs) often express frustration with the challenges they face when trying to invest in their home country, citing obstacles such as complicated account opening procedures, notarization requirements, and the international courier costs related to them.
Nithin Kamath’s analogy, shared on X (formerly Twitter), which draws a parallel between the NRI account opening process and the pre-digital era of retail brokerage, highlights the cumbersome and outdated nature of the current procedure. Physical forms, multiple signatures, and long timelines 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 unaware of the manual account opening process in the pre-digital era of retail brokerage. Investors were required to fill out paper forms, submit multiple copies of documents, and visit a broker’s office in person to sign and submit the paperwork. This procedure was often time-consuming and difficult, especially for investors who lived far from a broker’s office.
Highlighting the severity of the hurdles NRIs face in their investment endeavors in India, Kamath highlights the striking similarity between the current NRI account opening process and the pre-digital era of retail brokerage. NRIs still insist on filling up physical forms, providing multiple copies of documents, and personally visiting a bank or brokerage firm to sign and submit paperwork. This procedure can be lengthy and extremely difficult for NRIs residing abroad.
I LinkedIn post, Kamath shared, “Opening an NRI account reminds me of how retail brokerage worked before it went digital, thanks to Aadhaar, e-Sign, and Digilocker. Physical apps, messengers back and forth, ~30+ signatures, & more reasons to release.”
The complexity of the NRI account opening procedure acts as a significant barrier for NRIs considering investments in India. The perceived difficulty and time-consuming process of opening an account may cause hesitation among NRIs, which may cause them to miss out on valuable investment opportunities in the country.
Currently, the boarding procedure includes KYC verification and authorization through signature. Tagging the official handle of the Finance Ministry, Kamath tweeted, “The KYC will already be updated by an NRI having an NRE/NRO bank account, which will be accessed by other financial intermediaries through CKYC. NRIs must not have Aadhaar or a number linked to an Indian mobile number for electronic signature. Now that we are allowing UPI for NRIs mapped to their international numbers, what if we use that for authorization (e-signature) and opening a trade and debit account online?”
How do NRIs invest in Indian stocks?
Currently, Non-Resident Indians (NRIs) have two main options to invest in India: The Portfolio Investment Scheme (PIS) and the non-PIS route. Kamath also shared the same on X.
PIS route: The PIS route stands out as a more flexible and widespread option for NRIs. It gives NRIs the ability to invest in a wider spectrum of Indian securities, which include stocks, bonds, mutual funds and real estate. In addition, NRIs can leverage NRE and NRO bank accounts while investing through the PIS route.
Non-PIS route: The non-PIS route proves to be a more restricted option for NRIs. It restricts NRIs from investing in a restricted set of Indian securities, namely stocks and mutual funds. In addition, NRIs can use NRO bank accounts exclusively for investments through the non-PIS route.
Kamath said on LinkedIn, “Hopefully it will become easier to get on board an NRI. Apart from helping boost India’s story globally, it can also help the rupee” sharing his concern on X, “NRIs are among the wealthiest people outside India. We need to make it easy for them to invest at home.”
Too much foreign control is a concern
The restrictions on shareholding imposed on NRIs within foreign portfolio investors (FPIs) have raised concerns among many investors. These restrictions, which cap the maximum shareholding of an individual NRI at 25 percent and limit total NRI shareholding to 49 percent, are intended to protect Indian companies from excessive foreign influence. However, they have faced criticism for NRI investments that may be unwise in the Indian stock market.
The strict regulations prevent NRIs from making any investments in India. There have been calls in recent years urging the Indian government to relax the shareholding restrictions imposed on NRIs in FPIs. However, there are still concerns about the implications of relaxing these restrictions.
The Indian government needs to carefully assess the pros and cons of relaxing the shareholding restrictions for NRIs in FPIs. Although there is a strong argument for the implementation of certain modifications, the government must proceed with caution to avoid interfering with the country’s economic interests.
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Updated: 17 November 2023, 09:12 AM IST
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