Indian Depository Receipt means any instrument in the form of a depository receipt created by Domestic Depository in India against the underlying equity shares of issuing company. “Domestic Depository” means custodian of securities registered with SEBI and authorised by the issuing company to issue Indian Depository Receipts.
Overseas Custodian Bank means a banking company which is established in a country outside India and has a place of business in India and acts as custodian for the equity shares of issuing company against which IDRs are proposed to be issued by having a custodial arrangement or agreement with the Domestic Depository or by establishing a place of business in India.
Process involved in issue of India Depository Receipts (IDRs)
The following flowchart describes the IDRs process :
Issuing Company (company incorporated outside India delivers equity shares to Overseas Custodian)
Overseas Custodian Bank (instructs Domestic Depository to issue depository receipts in respect of shares held)
Domestic Depository (issues Depository Receipts to Indians against the equity shares of the company incorporated outside India)
Indians (i.e. investors of IDR issue)
Foreign shares being traded in Indian Exchanges in IDR form
ADVANTAGES OF THE IDR
Benefits to the Issuing Company
• It provides access to a large pool of capital to the issuing capita.
• It gives brand recognition in India to the issuing company.
• It facilitates acquisitions in India.
• Provides an exit route for existing shareholders.
Benefits to Investors
• It provides portfolio diversification to the investor.
• It gives the facility of ease of investment.
• There is no need to know your customer norms.
• No resident Indian individual can hold more than $200,000 worth of foreign securities purchased per
Lesson 12 Indian Depository Receipts 255
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