Deutsche Bank's $1bn investment in India being investigated by regulators over suspicions it breached rules
Indian market regulators are investigating whether a $1bn investment made by Deutsche Bank and other foreign investors into Indian debt securities through Guernsey-based UTI International breached foreign investment limits by routing the investment in this way. UTI Mutual Fund, which owns UTI International, has said that the investment was made fully within existing regulations, and that the Indian regulators have previously approved the transaction. There are suggestions that the investigation is a test case, and that the regulators are merely testing whether there is too much ambiguity in the current rules.
MUMBAI: With questions being raised about a USD one-billion debt market investment of Deutsche Bank and others, financial regulators RBI and Sebi are having a fresh look at the case to ensure compliance to their norms.Besides, they are also reviewing their regulations for greater clarity in this area and to ensure there is no room for any ambiguity.This follows reports that Deutsche Bank and some other foreign investors put in nearly USD one billion in the Indian debt securities through Guernsey-based UTI International, which is registered with Sebi as a foreign investor and is also a subsidiary of UTI Mutual Fund.There are allegations that these foreign investors could have breached the foreign investment limits for the debt market by routing the investment through UTI Mutual Fund.When contacted, UTI Mutual Fund CEO Leo Puri told PTI that "the investment is fully within the existing regulations"."Let me tell you that it is a completely legitimate transaction which has already been approved by both Sebi and RBI," Puri said, but added that Sebi has "subsequently wished to look into it" again.Deutsche Bank India refused to comment on the matter. Sebi Chairman U K Sinha had earlier said the regulator has not found anything wrong in the transaction so far."In case we find the transaction to be illegal, we will definitely have our view on it," Sinha told PTI on the sidelines of an industry function here last week.Replying to a query in this regard, an RBI spokesperson said, "We are aware of the transaction. Investments by FPIs in mutual funds fall under the corporate bond limit of USD 51 billion."We are, however, reviewing the regulation to ensure greater clarity in this area and that there is no room for any ambiguity."According to the market experts, the issue is mainly about the regulations being silent on whether an foreign investor can use the foreign subsidiary of a domestic mutual fund for investments in the debt instruments.Foreign portfolio investors throng to the domestic debt market due to higher rates being offered by the Indian papers which is 7-8 per cent, while the pricing on similar papers offered in the US and the other developed markets is less than 2 per cent.FPI inflows into the domestic mutual fund industry touched USD 6.4 billion as on June 15. This was USD 16.2 billion in fiscal 2015, according to a Kotak Equities report.