in a way the other side of the coin, is the transparency and governance arrangements in regard to operation of swfs in the home country. it is heartening to note that the imf has begun covering in its global financial stability report, in addition to the swfs, the issues relating to hedge funds and private equity funds. public policy initiatives on swfs the oecd approach in regard to swfs is that international co - operation can build mutual trust and keep markets open. the oecd investment committee and its non - oecd partners have agreed that over the coming period they will follow a two - track approach to these issues. first track would involve dialogue among governments, swfs and the private sector to improve understanding of both home and host country approaches to foreign investment. the second track would involve exchange of experiences in relation to national security protection, developing shared views on investment policies that observe the principles of proportionality, transparency and predictability, accountability, and that also avoid unnecessary restrictions to international investment, including by swfs. the oecd has recently, on 4 april 2008, released a report which is intended to develop guidance for recipient country policies toward investments from swfs. the oecd has also proposed to work on how governments can maintain their commitment to open international investment policies – including for swfs – while also protecting essential security interests. the resulting framework is expected to foster mutually beneficial situations where swfs enjoy fair treatment in the markets of recipient countries and these countries can confidently resist protectionist pressures. the european commission ( ec ) is proposing a common eu approach to respond to concerns over swfs and enhance the transparency, predictability and accountability of swfs'investments while maintaining an open investment environment. it has laid out the principles which should shape that approach. these are ( a ) commitment to an open investment environment both in the eu and elsewhere, including in third countries that operate swfs ; ( b ) support of multilateral work, in international organisations such as the imf and oecd ; ( c ) use of existing instruments at eu and member state level ; ( d ) respect of ec treaty obligations and international commitments, for example in the wto framework ; and ( e ) proportionality and transparency. the recent joint release by united states, abu dhabi and singapore sets out policy principles for the swfs as well as the countries receiving swf investment. the responsibilities enjoined upon swfs mainly relate to greater transparency in areas such as purpose, investment

and proper ” assessment of the investor include the source of funds for the acquisition and, where the investor is a body corporate, its track record of reputation for operating in a manner that is consistent with the standards of good corporate governance, financial strength and integrity. the process also envisages a higher level of due diligence when the share holding of the investor exceeds 10 per cent in the investee bank ’ s paid up capital, which includes fit and proper status of the investor entity. an amendment to the banking regulation act has been proposed which envisages prior approval of the reserve bank for acquisition of more than five per cent of the paid up share capital of a bank by any investor “ directly or indirectly, by himself or acting in concert with any person ”. the approval will be accorded after ensuring that the investor would be “ fit and proper ” from the perspective of public interest, interest of banking policy, emerging trends in banking and international best practices, and the interest of banking and financial system in india. in the case of investments in financial market infrastructure companies, such as stock exchanges, the guidelines stipulate a desirable dispersal of ownership. investment by individual entities, including investments by persons acting in concert, is subject to a threshold of five per cent of the equity in these companies. in regard to securitisation and reconstruction companies ( src ), the rbi conducts due diligence on the sponsors / investors before giving a certificate of registration to the src. any subsequent investment by any individual entity in excess of 10 per cent of the paid up equity capital of the src also acquires the status of a “ sponsor ” and requires prior permission of rbi which, as the regulator, is required to satisfy itself, among other things, of the “ fit and proper ” credentials of the investor. foreign investment in an indian company in the financial services sector, through acquisitions, requires prior permission of the reserve bank which allows such investments only after ensuring that the regulatory concerns, if any, are appropriately addressed and that the bonafides of the overseas investor are satisfactory. wherever necessary, the clearance or comments of the home country regulators of the investing entity are also sought while examining the requests. in case of investments by foreign investors in activities other than the financial services sector, where there are security or other administrative concerns, for instance, in defence and strategic industries, and print media and broadcasting sectors, investments are allowed only under the “ approval route ”. in order to assess the eligibility