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Explore how Indian Depository Receipts allow foreign companies to raise capital in India and diversify investor participation.
Indian Depository Receipts (IDRs) serve as a financial bridge between Indian investors and foreign companies. They provide a structured way for global companies to access Indian capital markets without issuing shares directly. This article explains the concept, features, working and example of IDRs in a simplified manner.
Understanding what is Indian Depository Receipt: an IDR is a financial instrument issued by a foreign company in India through a domestic depository. It represents a beneficial interest in the underlying equity shares of the foreign company. In simple terms, the Indian Depository Receipts meaning centers on enabling Indian investors to gain exposure to international businesses without going through overseas trading platforms.
Indian Depository Receipts allow a foreign company to raise funds in India by offering equity-like instruments to Indian investors. These receipts are denominated in Indian Rupees and listed on Indian stock exchanges. Central to the Indian Depository Receipts meaning is that while IDRs represent a beneficial interest in the underlying shares held by the domestic depository. Investors do not directly hold the foreign company's shares in their own name.
The characteristics of IDRs include:
Issued by foreign companies: Through domestic Indian depositories
Denominated in INR: Priced and traded in Indian Rupees
Listed on Indian exchanges: NSE or BSE
Underlying asset: Represents shares of the foreign company
Regulated by SEBI: Ensures transparency and investor protection
Transferability: Can be traded in thesecondary market like regular shares
Here is how the IDR process unfolds:
A foreign company deposits its equity shares with an overseas custodian bank.
The custodian appoints an Indian depository to issue IDRs in India.
The IDRs are listed on Indian stock exchanges.
Indian investors can buy and sell these IDRs just like equity shares.
Eligible dividends or other corporate benefits, if declared by the foreign company, are distributed to IDR holders in accordance with the applicable deposit agreement and regulatory requirements.
This mechanism allows access to international equity without directly investing through an overseas stock exchange.
A notable example of an Indian Depository Receipts is Standard Chartered Bank, which issued IDRs in 2010. It became the first foreign company to list in India via the IDR route.
Shares held in the UK: Deposited with an overseas custodian
IDRs issued in India: Listed and traded on BSE and NSE
Investor benefits: Indian investors could trade the IDRs on Indian exchanges, and any returns depended on market prices and corporate actions declared by the company
This provided Indian investors access to the bank's performance without engaging in foreign exchange or overseas trading.
Since Standard Chartered Bank's 2010 listing, IDRs have remained a rarely used route for foreign companies to raise capital in India. Standard Chartered's own IDRs were delisted from Indian exchanges in 2020 as the bank restructured its capital arrangements, and no other major foreign company has followed with a fresh IDR issuance since. While the possibility of reviving interest in the IDR route has occasionally been discussed in regulatory and market circles, the instrument continues to see limited real-world use in India compared to routes such as GDRs used by Indian companies raising funds overseas.
Here is what IDRs enable within the Indian financial system:
Indian investors can gain exposure to a foreign company's shares alongside their other Indian investments, without needing a foreign trading account.
Foreign companies can raise capital from the Indian market as an additional route, alongside their existing capital-raising channels abroad.
IDRs are listed and traded on Indian stock exchanges and are subject to the applicable Indian regulatory framework.
IDR transactions add to the overall trading activity on Indian exchanges, alongside other listed instruments.
Despite their advantages, IDRs come with certain drawbacks:
Limited liquidity: IDRs have not gained widespread popularity in India
Lack of voting rights: Investors do not get direct shareholding rights
Foreign exchange exposure: Underlying performance depends on global markets
Regulatory complexity: Foreign firms must meet SEBI's eligibility and compliance standards
Corporate action delays: Dividend payments and other benefits may take longer due to cross-border processing
The Securities and Exchange Board of India (SEBI) governs the issue and trading of IDRs. The regulations include:
The issuing foreign company must:
Satisfy the eligibility and disclosure requirements prescribed under the applicable SEBI regulations and the Companies (Issue of Indian Depository Receipts) Rules, as amended from time to time.
Be listed in its home country.
Have a consistent compliance track record.
Have a minimum number of IDRs issued to maintain public shareholding norms.
Issuing IDRs involves a defined sequence of regulatory and procedural steps for the foreign company:
Meeting SEBI's eligibility criteria, including the minimum paid-up capital, free reserves, and average turnover thresholds described above.
Obtaining approval from the Ministry of Corporate Affairs to proceed with the issue.
Depositing the underlying equity shares with an overseas custodian bank in the company's home market.
Appointing a domestic Indian depository, which issues the IDRs in India based on the shares held by the overseas custodian.
Listing the IDRs on Indian stock exchanges such as the NSE or BSE, making them available for Indian investors to buy and sell.
Once these steps are completed, the IDRs trade on Indian exchanges in the same way as other listed securities.
The tax treatment of gains or dividends from IDRs is governed by the applicable provisions of the Income-tax Act, 1961, and may vary depending on factors such as the nature of the income and the holding period. Tax rules may also change over time and differ based on an investor's individual circumstances. For the latest applicable provisions, refer to the Income-tax Act, 1961, or consult a qualified tax professional.
Investors holding IDRs typically exit their position by selling the IDRs on the stock exchange, just like any other listed instrument. Converting an IDR into the underlying foreign shares themselves, sometimes referred to as redemption, is more limited in practice and depends on regulatory permissions, including conditions set by SEBI and the Reserve Bank of India regarding fungibility between IDRs and the underlying foreign shares. As a result, most investors interact with IDRs primarily through buying and selling on the Indian exchange rather than converting them into foreign shares.
Here is how Indian Depository Receipts (IDRs) differ from Global Depository Receipts (GDRs):
| Feature | Indian Depository Receipts (IDRs) | Global Depository Receipts (GDRs) |
|---|---|---|
Issued In |
India |
Foreign markets (e.g., Europe, US) |
Issued By |
Foreign companies |
Indian companies |
Traded On |
Indian stock exchanges |
Overseas stock exchanges |
Investor Base |
Indian residents |
International investors |
Denomination |
Indian Rupees |
Foreign currency (USD, EUR etc.) |
Regulated By |
SEBI |
Foreign regulators (e.g., SEC, FCA) |
IDRs are one of the ways foreign companies can raise money from Indian investors, alongside other capital-raising routes available to them abroad. They provide a listed mechanism through which Indian investors can gain exposure to a foreign company's shares without directly trading on overseas exchanges. In doing so, IDRs represent one channel of cross-border financial integration between Indian and foreign capital markets.
An Indian Depository Receipt is a financial instrument that allows a foreign company to list in India and represents a beneficial interest in the underlying shares, held through a domestic depository. IDRs are bought, sold, and settled on Indian exchanges in Indian Rupees, though the adoption of this route has remained limited since its introduction.
Indian Depository Receipts are certificates issued by Indian depositories that represent shares of a foreign company, allowing Indian investors to invest in that company through Indian stock exchanges.
Only foreign companies that meet SEBI's eligibility norms, satisfy the applicable eligibility and regulatory requirements prescribed by SEBI and other relevant authorities.
IDRs are issued by foreign companies in India for Indian investors, whereas GDRs are issued by Indian companies in overseas markets for global investors.
IDRs carry risks such as lower liquidity, lack of voting rights, dependence on global markets, and delays in receiving corporate benefits.
An IDR is a way for Indian investors to gain exposure to a foreign company's shares through the Indian stock exchange, without needing an overseas trading account. It is issued in India but represents shares held by that foreign company abroad.
Standard Chartered Bank issued IDRs in 2010, becoming the first foreign company to list in India this way. Indian investors could buy these IDRs on the NSE and BSE and receive eligible corporate benefits, such as dividends if declared by the company, subject to the applicable terms and regulations.
With an IDR, you do not need a foreign trading account or to deal with foreign currency — you buy and sell it in Indian Rupees on an Indian exchange. However, you do not directly hold the underlying foreign shares in your own name.
IDRs are generally taxed under the same broad framework as other securities listed in India, though the exact treatment can vary. An individual should check the latest tax rules or speak with a tax professional for their specific situation.
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