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Introduction
- Indian Depository Receipt (IDR) is a rupee denominated financial instrument created by a domestic depository (custodian of securities registered with the Securities and Exchange Board of India (SEBI).
- It is issued against the underlying equity of the company to enable foreign companies to raise funds from the Indian securities Markets.
- As foreign companies are not allowed to list on Indian equity markets, IDR is a way to own shares of those companies. These IDRs could be listed on the Indian stock exchanges.
- Through the IDRs, investors could directly invest money into international companies.
- Standard Chartered Bank was the first foreign corporation to issue an IDR.
Features of Indian Depository Receipts
- An IDR is issued by a foreign firm that cannot go through the Indian listing process.
- An IDR is beneficial for a foreign firm that wishes to share the risk and rewards of the offering with Indian shareholders.
- IDRs are simply more easy and more cost-effective than buying stocks on international exchanges.
- IDRs are derivative instruments in this sense because their value is derived from the underlying shares.
- IDRs are denominated in Rupees. It reflects a stake in a certain number of the Issuing Company’s underlying equity shares. Deposited Shares are the name for these shares.
- These IDRs would be freely transferable and placed on Indian stock markets.
Intermediaries involved in Issuing IDR
- An Overseas Custodian Bank is a banking organization based in a nation other than India with a presence in India that functions as a custodian for the equity shares of the issuing company against which IDRs are intended to be issued in the issuer’s underlying equity shares.
- Domestic Depository, which is a securities custodian registered with SEBI and authorized by the issuing company to issue Indian Depository Receipts; c) Merchant Banker, who is responsible for due diligence and through whom the issuer company files the draught prospectus for the issuance of the IDR with SEBI.
