An IDR is a mirror image of an ADR (American Depository Receipt) or a GDR (Global Depository Receipt). In an IDR, foreign companies issue shares to an Indian Depository, which would, in turn, issue Depository Receipts to investors in India. The depository receipts will be listed on stock exchanges in India and will be freely transferable.

However, people who hold IDRs will not have any voting rights. It is an investment opportunity for the locals. For the companies based abroad it is an opportunity to raise funds here.

Now let us take a look at the revised rules that will facilitate the issuance of IDRs.

At present, Indians can acquire foreign equities to a maximum limit of $50,000. This rule is likely to be revised soon. For foreign companies, the new rules have reduced minimum paid-up capital to half of the amount required previously. The criterion of average turnover of $500 million in the three years before the issue of IDR has been dropped. The new regulation requires a company to have made a profit in only three out of five years, whereas, the old norm required a company to make a profit in each of the five years before the IDR is issued.

The new norms do not specify any recommended debt-equity ratio. The old rule specified a 2:1 debt-equity ratio. The new regulation has also enhanced the size of IDR offerings to 25 per cent of the post-paid capital of the company, which is a big jump from the existing 15 per cent limit. Also, publishing of unaudited quarterly results subject to limited review by auditors has been allowed.

The government has also done away with the requirement of prior clearance from market regulator SEBI. For any company that wishes to make an IDR issue will only be required to file a prospectus with the SEBI.

Few years back it was inconceivable for a foreign company to raise funds from India through IDRs as the norms were unfriendly. Leave alone foreign companies, even an Indian company would not have complied had the same norms were applicable for them as well. The change, as the market analysts say, is positive, and will give Indians an opportunity to create wealth.

Though there is a concern that India suffers from a capital crunch, which might not lure many foreign companies to float their IDRs in India. However, India is a vibrant economy and many foreign companies have their subsidiaries registered in India. Given their interest in the Indian economy and growth potential, shortage of capital, if any should not be an issue.

Nasdaq, too, will help companies listed on it to enter the Indian bourses by issuing Indian Depository Receipts. There are several foreign Nasdaq listed companies active in India and growing. IDR is a bankable opportunity for them to expand in India.

At present, only eight companies listed on Nasdaq have a presence in India. But the number of such companies is likely to rise in future as India has a huge growth potential in sectors such as power, retail, infrastructure, insurance and telecom services.

The trend is equally popular in the US too as more and more Indian companies want to raise funds abroad. In fact, many brokerage houses are said to be taking membership of the American exchange. It is learnt that few private entities such as ICICI Securities and HDFC have already cleared the examinations necessary for membership. According to an estimate, more than 100 Indian companies were planning to get listed either on Nasdaq or NYSE.

The step to revise rules governing IDRs is indeed a move towards globalisation of the Indian stock markets.