The Securities and Exchange Board of India (Sebi) has proposed allowing online bond platform providers (OBPPs) to offer products regulated by the International Financial Services Centre Authority (IFSCA), including overseas debt investments that aren't easily accessible to most Indian investors using digital platforms. According to reports from Mint, ETLegalWorld, SiliconIndia, and Financial Express, the move is expected to widen the current scope of OBPPs, which are largely restricted to listed debt securities, government securities and similar domestic instruments. The proposal also seeks to align OBPP operations with those of stockbrokers, subject to compliance with foreign exchange rules, including overseas investment limits under the Liberalised Remittance Scheme (LRS). Public comments will be accepted until May 26, 2026, as announced by Sebi in its consultation paper. In a consultation paper issued on Tuesday, the markets regulator recommended changes aimed at easing business conditions for OBPPs while widening the range of products they can offer.
In FY25, resident Indians remitted a total of ₹2.01 lakh crore overseas under the LRS, according to data from the Reserve Bank of India (RBI). The proposal stems from a request by the IFSCA, which asked Sebi to permit OBPPs to offer debt securities listed overseas through a regulated framework within the International Financial Services Centre. Currently, Sebi-registered stockbrokers can operate in GIFT City by registering as broker-dealers with the IFSCA, while OBPPs are not permitted to offer IFSCA-regulated products, creating asymmetry in market access. OBPPs will need to detail how investors can resolve complaints with products regulated by authorities other than Sebi. The proposal also includes permitting platforms to offer tax-saving bonds issued by state-owned companies, as reported by ETLegalWorld. Additionally, Sebi has proposed allowing OBPPs to offer bonds under Section 54EC of the Income Tax Act, 1961, and Section 85 of the proposed Income-tax Act, 2025, issued by entities like government-backed entities and not required to be listed. To safeguard investors, Sebi has proposed that OBPPs disclose key features of such bonds including eligible issuers, lock-in period, investment limits, non-transferability and tax benefits, while offering them on their platforms.
Industry participants indicated that OBPPs are keen to explore the GIFT City route but implementation details remain critical. According to Mint reports, Nikhil Aggarwal, founder & group CEO of Grip Invest, stated that "OBPPs are keen to explore the GIFT City route but the devil is in the details. Compliance, customer enquiries and the implementation of norms matter. In our view, OBPPs will take time to fully understand the same before taking this product live." Vineet Agrawal, co-founder of Jiraaf, noted that "A few OBPPs are keen to explore the opportunity, but a sharp pickup is unlikely in the near term given that product will be new and core retail demand for overseas bonds remains limited." The proposal aims to enhance access and bolster Gujarat's GIFT City as a global finance hub, as reported by ETLegalWorld. To strengthen governance, Sebi proposes aligning OBPP compliance officer requirements with stock brokers under FEMA regulations, replacing the current mandate of appointing a company secretary with a broader framework under the Sebi (Stock Brokers) Regulations, 2026. This move follows representations from the Institute of Chartered Accountants of India (ICAI), seeking flexibility in appointing compliance officers and greater uniformity across regulatory frameworks.
Foreign debt remains a niche product in India, with most retail investors focused on domestic fixed-income and equity products. According to Mint reports, even among affluent investors, allocations to such instruments are modest and driven by diversification rather than core portfolio exposure. Sebi has struggled to increase retail investments in domestic debt instruments despite undertaking several initiatives to spread awareness, with taxation remaining a key hurdle as debt returns are taxed at marginal slab rates with no indexation benefit, while equities enjoy more favorable capital-gains treatment. Aggarwal of Grip Invest said, "We haven't yet received a meaningful number of enquiries from retail investors for offshore products. Participation in foreign debt will be a subset of the interest in Indian investment opportunities, which is growing fast but still nascent."
Sebi has also proposed a set of regulatory tweaks aimed at improving clarity and easing operations of OBPPs. As reported by Mint, ETLegalWorld, SiliconIndia, and Financial Express, these include permitting platforms to offer tax-saving bonds issued under Section 54EC of the Income Tax Act, which are issued by government-notified entities such as Power Finance Corporation, Indian Railways Finance Corporation and REC, and REC aims to provide capital gains tax exemption to investors. Agrawal noted that "The listing of 54EC bonds on OBPPs is a great step as it will allow investors to deploy their capital gains in a more tax efficient manner. We are expecting high retail demand for this product." OBPPs will be required to carry a clear disclaimer stating that these are specific tax-saving instruments and that investor grievances related to such bonds will not fall under Sebi's purview, and must instead be addressed to the issuer. The changes are also rooted in a broader regulatory effort to deepen the role of GIFT City and connect it more directly with domestic investors. These reforms position OBPPs as key facilitators in India's growing corporate bond market, bridging domestic and GIFT City ecosystems while enhancing retail access to fixed-income investments.
