Qualified Institutional Buyers, often called QIBs, are institutional investors carrying the expertise and financial resilience to assess and invest in capital markets carefully. Let's understand more about QIB here.
Qualified Institutional Buyers are merely associations of like-minded individual investors who come together to raise significant investible amounts, post which they take an indirect route using a third-party’s financial services & knowhow.
These third-party institutions possess the necessary market experience and knowledge to ensure better returns.
Additionally, such Qualified Institutional Buyers possess considerable financial heft, with exchange boards recognising them as legal entities. QIBs require far less oversight from Central authorities.
The definition of ‘QIB ’ was originally defined in the SEBI (Disclosure and Investor Protection Guidelines) Regulations, 2000. The said guidelines were repealed by SEBI ICDR Regulations in 2009, and which in turn was repealed by SEBI ICDR Regulations 2018.
Regulation 2(1)(ss) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 defines QIBs as under: “qualified institutional buyer” means:
(i) a mutual fund, venture capital fund, alternative investment fund and foreign venture capital investor registered with the Board;
(ii) foreign portfolio investor other than individuals, corporate bodies and family offices;
(iii) a public financial institution;
(iv) a scheduled commercial bank;
(v) a multilateral and bilateral development financial institution;
(vi)a state industrial development corporation;
(vii) an insurance company registered with the Insurance Regulatory and Development Authority of India;
(viii) a provident fund with minimum corpus of twenty five crore rupees;
(ix) a pension fund with minimum corpus of twenty five crore rupees;
(x) National Investment Fund set up by resolution no. F. No. 2/3/2005-
DDII dated November 23, 2005 of the Government of India published in the Gazette of India;
(xi) insurance funds set up and managed by army, navy or air force of the Union of India;
(xii) insurance funds set up and managed by the Department of Posts, India; and
(xiii) systemically important non-banking financial companies
While it is true that QIBs are less tangled up in legal affairs and undergo lower scrutiny, there are several regulations that monitor and govern how QIBs are run. The most crucial ones are as follows –
This measure was adopted in 2000 when the DIP Guidelines were laid down to prevent favouritism. All QIBs must be chosen neutrally and without bias.
The merchant broker must submit the due diligence certificate, however. Otherwise, any investment via the Qualified Institutional Buyers channel will be rendered null and void.
The Indian Government introduced the QIBs concept when many domestic companies of varying sizes were looking to expand rapidly. With the QIB route, several Indian organisations started operating overseas, taking advantage of less stringent regulatory environments vis-a-vis India and bringing in jobs and precious foreign exchange.
That does not mean that Qualified Institutional Buyers and its concept are beyond reproach. Here are some pros and cons.
Institutional Buyers can own a substantial stake in a company, thanks to QIPs. It may dilute existing shareholders’ interests. It may lead to a marked reduction in the rights of stakeholders.
As the Central Government pushes for a rapid increase in domestic production, which in turn will be driven by heightened consumption, most market experts believe that Qualified Institutional Buyers will play a vital role in the rebuilding of the nation.
It remains to be seen if any further amendments to The Companies (Amendment) Act 2020 are passed.