Canadian investors often turn to India when seeking enhanced portfolio returns through global investment. This is demonstrated by the more than 25% increase in RBC Investor Services’ (RBCIS) assets under custody in India over the past year—largely driven by higher investment flows and strong market performance.
The world's most populous country currently boasts the fifth-largest economy globally. With recent annual growth of 6% to 7%, the Indian market is expected to become third largest by 2027, behind the U.S. and China.1
While India welcomes foreign investment, Canadian investors look to Derek Yiu, head of network management for Asia Pacific markets at RBCIS, to help navigate the country's constantly changing operational and regulatory environment. Located in Hong Kong, Yiu and team work closely with RBCIS' local sub-custodian, which provides on-the-ground insight to unlock the value offered by investment opportunities in India.
The Indian market is evolving rapidly from a regulatory perspective
"The Indian market is evolving rapidly from a regulatory and investment guideline standpoint," Yiu says. "One of the network management roles is to keep on top of these changes, supporting Canadian investors’ access to the Indian market and helping them remain compliant in this very dynamic environment."
Enhanced market entry process
Foreign investors face various practical issues when navigating Indian regulation, including market entry. India requires foreign portfolio investors (FPIs) to register through Designated Depository Participants (DDPs) on behalf of the Securities and Exchange Board of India (SEBI) prior to investing in the market. Registration is often a lengthy process, along with know-your-client (KYC) certification and a local tax identification issuance that includes tax service provider requirements.
“However, India is continuing to introduce enhancements and take a more risk-based view of market entry procedures for Canadian investors,” Yiu says. “For example, in March 2023, FPIs were mandated to notify custodians of material organizational changes within seven business days. But this requirement is now being eased.”
India is taking a more risk-based view of market entry procedures
In response to calls by RBCIS and other custodians to relax the FPI timeline, “material changes” have now been broken down into two categories: Type I changes will remain at seven business days but supporting documents can now be provided within 30 days. The notification timeline for other material changes, categorized as Type II, will now be 30 days, including supporting documents.
Focus on India Government Bonds
Inclusion of India Government Bonds (IGBs) in the JPM Emerging Markets Bond Index commenced in June 2024, including a weight of up to 10% by the end of March 2025. Foreign investors have responded positively with significant IGB inflows. "We work closely with our clients to set up their local market access and optimize trading efficiencies in IGBs,” Yiu says. While India established margin funding requirements for FPIs looking to invest in IGBs, RBCIS worked with its local partner to eliminate this requirement.
RBCIS has worked to eliminate the margin requirement for IGBs
“Elimination of the margin funding requirement for Canadian investors will free up capital for our clients down the road as IGBs are added to other widely tracked indexes,” Yiu says. Bloomberg also announced the inclusion of IGBs in its Emerging Market Local Currency Index effective February 1, 2025. Working with industry groups, RBCIS and other custodians in the market have been advocating to further ease IGB trading and allow early pay-in for settlements.
Leader on shortened settlement
Yiu notes that markets seemed to be surprised that India led the global charge toward a shortened T+1 settlement framework, which the country introduced in January 2023. Both Canada and the U.S. followed suit in May 2024.
Investors need to prepare for a further shortening of settlement cycles
”Investors need to prepare for a further shortening of settlement cycles, and India will continue to take the lead globally," he says. "After the successful roll-out of T+1, India paved the way to introduce optional T+0 and instant settlement for custodian investors." SEBI recently introduced a beta version of T+0 on an optional basis for a limited set of securities and a short list of brokers. This is scheduled to go live later this year.
While the benefits of a further shortened settlement cycle are numerous, including instant receipt of securities and funds, reduced settlement risk and increased capital free-up, there are potential issues. "T+0 could mean significant improvements in market efficiencies. However, because of time zone differences, the concern for Canadian investors will be foreign exchange and funding. It's, therefore, important for investors to look at optimizing their operating model," says Yiu. RBCIS has been in active discussions with market participants on potential operating models to accommodate T+0 for FPIs.
New disclosure requirements
Another example of challenging regulation is the beneficial owner threshold disclosures. In November 2023, India introduced mandated disclosures for FPIs who hold more than 50% of their Indian equity assets in a single corporate group or more than INR 250 billion of equity assets in the Indian market.
It is important to disclose investments within the required timeline
“Investors need to be reminded that failure to disclose or realign investments within the required timeframe could force them to liquidate their positions or exit the market,” Yiu explains. “Our local partners notify us of any breaches and we, in turn, inform the respective clients, who have 10 business days to remediate or provide additional disclosure.” RBCIS is continuing to engage with market participants to identify common fund structures that could be exempted from the disclosures.
India also recently mandated Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) certifications to be uploaded onto the KYC Registration Agency (KRA) portal. RBCIS is working with our industry peers to exempt FPIs and custodian clients from the FATCA/CRS upload requirement.
Looking ahead
As India continues to open up, Yiu expects the country to be an increasingly important market for global investors. “We anticipate further easing in market entry requirements, additional exemptions in the FPI disclosures, simplified tax processes for faster repatriations and more assets available for trading by eligible foreign investors,” Yiu says.
Engaging a partner with a close eye on the Indian market can make all the difference
Canadian investors seeking opportunities in India need to stay on top of these regulatory and operational changes, Yiu says. “Engaging a partner with a very close eye on what’s happening in the market can make all the difference.”