Indian Depository Receipt (IDR) is a

financial instrument Financial instruments are monetary contracts between parties. They can be created, traded, modified and settled. They can be cash (currency), evidence of an ownership interest in an entity or a contractual right to receive or deliver in the form ...

denominated in

Indian Rupees The Indian rupee (symbol: ₹; code: INR) is the official currency in the republic of India. The rupee is subdivided into 100 ''paise'' (singular: ''paisa''), though as of 2022, coins of denomination of 1 rupee are the lowest value in use wher ...

in the form of a

depository receipt A depositary receipt (DR) is a negotiable financial instrument issued by a bank to represent a foreign company's publicly traded securities. The depositary receipt trades on a local stock exchange. Depositary receipts facilitates buying shares in f ...

. The IDR is a specific Indian version of the similar

global depository receipt A global depository receipt (GDR and sometimes spelled ''depositary'') is a general name for a depositary receipt where a certificate issued by a depository bank, which purchases shares of foreign companies, creates a security on a local excha ...

s. It is created by a Domestic Depository (custodian of securities registered with the

Securities and Exchange Board of India The Securities and Exchange Board of India (SEBI) is the Regulatory agency, regulatory body for securities and commodity market in India under the ownership of Ministry of Finance (India), Ministry of Finance within the Government of India. It w ...

) against the underlying equity of issuing company to enable foreign companies to raise funds from the Indian securities Markets.Issues by foreign companies in India (Indian Depository Receipts)(IDRs)
Securities and Exchange Board of India (SEBI) The foreign company IDRs will deposit shares to an Indian depository. The depository would issue receipts to indian investors against these shares. The benefit of the underlying shares (like bonus, dividends etc.) would accrue to the

holders in India.

History

IDR's are based on the original

American depositary receipt An American depositary receipt (ADR, and sometimes spelled ''depository'') is a negotiable security that represents securities of a foreign company and allows that company's shares to trade in the U.S. financial markets. Shares of many non-U.S ...

s that were first introduced in 1927 in the US. The Ministry of Corporate Affairs of the

Government of India The Government of India ( ISO: ; often abbreviated as GoI), known as the Union Government or Central Government but often simply as the Centre, is the national government of the Republic of India, a federal democracy located in South Asia, ...

, using section 642 read with section 605A had prescribed the Companies (Issue of Indian Depository Receipts) Rules, 2004 (IDR Rules) vide notification number GSR 131(E) dated February 23, 2004. The rules for IDRs were operationalized by the

(SEBI)—the Indian markets regulator in 2006. Operation instructions under the

Foreign Exchange Management Act The Foreign Exchange Management Act, 1999 (FEMA), is an Act of the Parliament of India "to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly ...

were issued by the

Reserve Bank of India The Reserve Bank of India, chiefly known as RBI, is India's central bank and regulatory body responsible for regulation of the Indian banking system. It is under the ownership of Ministry of Finance, Government of India. It is responsible f ...

on July 22, 2009.Issue of Indian Depository Receipts
Reserve Bank Of India, July 22, 2009 The SEBI has been notifying amendments to these guidelines from time to time. Standard Chartered PLC became the first global company to file for an issue of Indian depository receipts in India in 2010. Standard Chartered PLC Press release, May 30, 2010 , Standard Chartered PLC announces the public filing of a Draft Red Herring Prospectus in India
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Standard Charter IDR Issue

Standard Chartered plc was the first foreign company to have publicly elicited interest in making an IDR issue in India. Standard Chartered CEO Peter Sands was quoted in the Indian media as saying the "IDR listing (is) to enhance StanChart's commitment to India."IDR listing to enhance StanChart's commitment to India: CEO
Business Standard, Mumbai November 12, 2009, 17:37 IST In 2010, it was reported that Standard Chartered may be inching closer to an issue. "We have already got advisors and we will file for the IDR issue after our (India) results are published by March-end," said Neeraj Swaroop, Regional Chief Executive, India and South Asia of Standard Chartered. Patrick Hosking, financial editor of the Times reports that Standard Chartered (may) offer up to $750 million of new shares to Indians.Standard Chartered to be listed in Mumbai
The Times, March 4, 2010 but India’s top financial portal reported top officials as suggesting the amount could be anywhere between $500 million and $750 million.
Money Control, March 4, 2010 This was follow up with reports cited, Standard Chartered Plc files DRHP to issue IDRs in India with SEBI on March 30, 2010.Standard Chartered Plc pdf
SEBI, March 30, 2010 Standard Charter expects to raise around $500–750 million (Rs 2,250-3375 crore) to grow its businesses globally.Standard Chartered set to make IDR history at Rs 105-115
DNA, May 14, 2010Standard Chartered Allocates 36 Million Indian Depository Receipts To Anchor Investors
Morning Star, May 25, 2010 Standard Chartered opened its IDR offering to Indian investors on May 25, 2010, as reported by BBC News. The price band for the offering is 100 (£1.47; $2.10) to 115 rupees per IDR. The bank, which makes most of its profits in Asia, will issue 240 million IDRs through the offer.Standard Chartered's Indian share offering opens
BBC, 25 May 2010
Hindu Business Line, 25 May 2010 In an interview with NDTV India, Neeraj Swaroop, CEO - South Asia at Standard Chartered Bank, said that the decision to list in India through an Indian depository receipts (IDR) issue, was not about raising capital but it is about a message of commitment to India.IDR not about capital: StanChart - Video
NDTV Standard Chartered fixed its issue price for Indian Depository Receipts at Rs 104 per unit. At this issue price, the bank will raise Rs. 2,490 crore ($530 million) by selling 24 crore IDRs. Every 10 IDRs represents one share of the bank. The IDRs opened at the Bombay Stock Exchange and National Stock Exchange on June 11 2010.

Eligibility to issue

The regulations relating to the issue of IDRs is contained in

(Issue of capital and disclosure requirements) Regulations, 2009, as revised from time to time.Securities and Exchange Board of India (Issue of capital and disclosure requirements) regulations, 2009
Securities and Exchange Board of India (SEBI), August 26, 2009 According to Clause 26 in Chapter III (“Provisions as to public issue”), the following are required of any company intending to make a public issue in India: * it has net tangible assets of at least

Indian rupee The Indian rupee ( symbol: ₹; code: INR) is the official currency in the republic of India. The rupee is subdivided into 100 '' paise'' (singular: ''paisa''), though as of 2022, coins of denomination of 1 rupee are the lowest value in use ...

three crore in each of the preceding three full years (of twelve months each), of which not more than fifty per cent are held in monetary assets: Provided that if more than fifty per cent. of the net tangible assets are held in monetary assets, the issuer has made firm commitments to use such excess monetary assets in its business or project; * it has a track record of distributable profits in terms of section 205 of the Companies Act, 1956, for at least three out of the immediately preceding five years: Provided that extraordinary items shall not be considered for calculating distributable profits; *it has a net worth of at least INR one crore in each of the preceding three full years (of twelve months each); *the aggregate of the proposed issue and all previous issues made in the same financial year in terms of issue size does not exceed five times its pre-issue net worth as per the audited balance sheet of the preceding

financial year A fiscal year (or financial year, or sometimes budget year) is used in government accounting, which varies between countries, and for budget purposes. It is also used for financial reporting by businesses and other organizations. Laws in many ...

; *if it has changed its name within the last one year, at least fifty per cent. of the revenue for the preceding one full year has been earned by it from the activity indicated by the new name. Further, Clause 97 in Chapter X stipulates additional requirements from a foreign company intending to make an issue of IDRs: An issuing company making an issue of IDR shall also satisfy the following: *the issuing company is listed in its home country; *the issuing company is not prohibited to issue securities by any regulatory body; *the issuing company has track record of compliance with securities market regulations in its home country.

Issue Process

According to SEBI guidelines, IDRs will be issued to Indian residents in the same way as domestic shares are issued. The issuer company will make a public offer in India, and residents can bid in exactly the same format and method as they bid for Indian shares. The issue process is exactly the same: the company will file a draft

red herring prospectus A red herring prospectus, as a first or preliminary prospectus, is a document submitted by a company (issuer) as part of a public offering of securities (either stocks or bonds). Most frequently associated with an initial public offering (IPO) ...

(DRHP), which will be examined by SEBI. The general body of investors will get a chance to read and review the DRHP as it is a public document, available on the websites of SEBI and the book running lead managers. After SEBI gives its clearance, the company sets the issue dates and files the document with the Registrar of Companies. In the next step, after getting the Registrar’s registration ticket, the company can go ahead with marketing the issue. The issue will be kept open for a fixed number of days, and investors can submit their application forms at the bidding centers. The investors will bid within the price band and the final price will be decided post the closure of the Issue. The receipts will be allotted to the investors in their demat account as is done for equity shares in any public issue. On 26 October 2010, SEBI notified the framework for rights issue of Indian Depository Receipts (IDRs). Disclosure requirement for IDR rights would more or less be in line with the reduced requirement applicable for domestic rights issue.

Fungibility

The Indian depository Receipts shall not be automatically

fungible In economics, fungibility is the property of a good or a commodity whose individual units are essentially interchangeable, and each of whose parts is indistinguishable from any other part. Fungible tokens can be exchanged or replaced; for exam ...

into underlying equity shares of issuing company. IDR Holders can convert IDRs into underlying equity shares only with the prior approval of the

(RBI). Upon such exchange, individual persons resident in India are allowed to hold the underlying shares only for the purpose of sale within a period of 30 days from the date of conversion of the IDRs into underlying shares. SEBI has recently allowed shareholders to convert their depository receipts into equity shares of the issuer company and vice versa.

Eligibility for investors

According to Sebi guidelines, the minimum bid amount in an IDR issue is Rs 20,000 per applicant. Like in any public issue in India, resident Indian retail (individual) investors can apply up to an amount of INR 2,00,000 and non-institutional investors (also called high-net-worth individuals) can apply above INR 1,00,000 but up to applicable limits.

Reservations in IDR issues (clause 98, Chapter X)

According to current regulations, at least 50% of the Issue is to be allocated to

qualified Institutional Buyer A qualified institutional buyer (QIB), in United States law and finance, is a purchaser of securities that is deemed financially sophisticated and is legally recognized by securities market regulators to need less protection from issuers than most p ...

s (QIBs), 30% of the issue to the retail individual investors and balance 20% of the issue to non-institutional investors and employees. The ratio of non-institutional investors and employees is at the discretion of the company to decide. The issue will fail if the company does not get QIB investors to the extent of 50% of the issue size.

Taxation

Corporate lawyer Cyril Shroff of law firm Amarchand & Mangaldas & Suresh A. Shroff & Co. explain the tax implications.Indian Depository Receipt (IDR) Video
YouTube, March 23, 2010 IDRs would also help improve the Sharpe's ratio of domestic portfolios by reducing home bias, that is either rooted in mistakes on the part of fund managers or in capital controls, says Professor Ajay Shah of the Indira Gandhi Institute of Developmental Research.
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References

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External links

Issue of Indian Depository Receipts (IDRs)
Reserve Bank Of India Official Website
Indian Depository Receipt –The Way Forward

FAQ
from the India Times. Depositary receipts Banking in India Equity securities