No PANs Issued to FPIs for a Month, Onboarding Hit

Why It Matters

The PAN delay stalls fresh foreign capital entering Indian securities markets, potentially dampening liquidity and market depth. Prompt regulatory fixes are critical to maintain India’s attractiveness to global investors.

Key Takeaways

• No PANs issued to FPIs for a month, halting onboarding
• CAF form changes introduced validation errors and AR appointment hurdles
• At least 20 newly registered FPIs await PAN, unable to trade
• SEBI proposes authorized signatories to replace representatives, easing compliance

Pulse Analysis

India’s PAN system is a linchpin for foreign investors, linking tax identification to the ability to trade securities. The Common Application Form (CAF) was introduced as a single‑window portal to streamline FPI registration, KYC, PAN allotment, and account opening. When the Income Tax Department rolled out new PAN application forms, the integrated API chain—from the department through Protean to depositories—encountered unforeseen data‑validation rules, turning a previously two‑day process into a month‑long standstill.

The immediate fallout is tangible: at least 20 FPIs, already cleared on the registration front, sit idle without demat accounts, unable to deploy capital into Indian equities or bonds. Validation glitches such as character‑limit mismatches, formatting errors, and the newly required authorised representative (AR) entry have compounded the delay. Many FPIs struggle to find domestic individuals willing to act as ARs due to potential tax exposure, further throttling the onboarding pipeline. This bottleneck not only curtails fresh inflows but also raises compliance costs for custodians and depository participants who must manage stalled applications.

Regulators are moving quickly. SEBI has raised the issue with the Central Board of Direct Taxes (CBDT) and is proposing that FPIs designate authorised signatories instead of ARs, a change that could bypass the most contentious requirement. If approved, the amendment would restore the CAF’s speed and reassure investors that India’s market entry mechanisms remain efficient. The episode underscores the delicate balance between tightening tax oversight and preserving a frictionless investment environment, a balance that will shape India’s ability to attract sustained foreign portfolio capital.