GDR and IDR Features, Regulation and Comparison - Article

Introduction

A company normally issues shares in its home country.

However, large companies may want access to investors in another country without requiring every foreign investor to directly purchase and hold the company's home-market shares.

A Depository Receipt, or DR, provides one way to achieve this.

A depository receipt is a tradable instrument backed by underlying securities held through a custodian-depository structure.

For CAIIB, two important forms are:

• Global Depository Receipt (GDR)

• Indian Depository Receipt (IDR)

The easiest way to understand the direction is:

GDR: Indian securities → Receipt issued abroad → Overseas investors

IDR: Foreign company's shares → Receipt issued in India → Indian market

The current 2026 IIBF CAIIB BFM syllabus specifically includes Global Depository Receipts and Indian Depository Receipts under Module C – International Equity and Debt Products. (iibf.org.in)

Learning Objectives

After studying this topic, you should be able to:

• explain the basic concept of a depository receipt;

• understand the structure and purpose of a GDR;

• understand the structure and purpose of an IDR;

• identify the major intermediaries in each arrangement;

• distinguish the current regulatory frameworks applicable to GDRs and IDRs;

• understand the relationship between a receipt and its underlying shares;

• explain conversion, corporate benefits, and fungibility; and

• distinguish GDRs from IDRs in CAIIB case-study questions.

What Is a Depository Receipt?

A Depository Receipt represents an interest in underlying securities held through a depository and custodian arrangement.

Instead of the investor directly holding the original security in the issuer's home market, the investor holds a receipt representing the underlying security.

The important idea is:

Underlying Security → Depository/Custodian Structure → Depository Receipt → Investor

The Depository Receipts Scheme, 2014 defines a depository receipt issued outside India as a foreign-currency-denominated instrument issued by a foreign depository in a permissible jurisdiction against permissible securities deposited with a domestic custodian. The definition includes GDRs. (dea.gov.in)

What Is a Global Depository Receipt?

A Global Depository Receipt, or GDR, is a depository receipt issued outside India against underlying eligible Indian securities held through the prescribed custodian structure.

In simple terms:

Indian underlying securities are held in India → foreign depository issues GDRs abroad → overseas investors hold the GDRs.

The Government's Depository Receipts Scheme, 2014 provides the present comprehensive framework for issue and listing of depository receipts such as GDRs by Indian issuers in permissible jurisdictions abroad. (dea.gov.in)

Basic GDR Structure

A simplified GDR structure is:

Indian Company / Holder of Eligible Securities

↓

Underlying eligible securities

↓

Domestic Custodian in India

↓

Foreign Depository

↓

GDRs issued outside India

↓

Overseas Investors

The underlying security remains connected to India, while the GDR itself is issued and may be traded in the overseas market according to the applicable framework.

Main Features of GDRs

1. Issued Outside India

The depository receipt is issued by a foreign depository in a permissible jurisdiction.

2. Foreign-Currency Denominated

Under the Depository Receipts Scheme, a DR covered by that framework is a foreign-currency-denominated instrument.

3. Backed by Underlying Securities

The GDR is not an independent company share created without backing.

It represents eligible underlying securities held with the prescribed domestic custodian.

4. Access to Global Investors

A GDR structure can help an Indian issuer access a broader international investor base.

5. Tradability

Depending on the issue structure, GDRs may be listed on an international exchange or issued through another mechanism permitted under the Depository Receipts Scheme and the law of the permissible jurisdiction.

The 2014 Scheme expressly recognises that a DR may be listed on an international exchange or may not be listed, depending on its structure. (dea.gov.in)

6. Underlying Foreign-Holding Limits Continue to Matter

GDRs do not provide a route to ignore India's foreign-investment limits.

RBI's Foreign Investment Master Direction provides that eligible instruments issued or transferred to foreign depositories, together with relevant foreign holdings, cannot exceed applicable foreign-holding limits under FEMA and related rules. (rbi.org.in)

Who Can Issue GDR-Related Depository Receipts?

Under the Depository Receipts Scheme, 2014, persons eligible to issue or transfer permissible securities to a foreign depository include:

• Indian companies, whether listed or unlisted and public or private;

• other issuers of permissible securities; and

• holders of permissible securities,

subject to applicable conditions and provided they are not specifically prohibited from accessing the capital market or dealing in securities. (dea.gov.in)

Actual issuance must also comply with the Companies Act, FEMA, securities laws, sectoral restrictions, and other applicable requirements.

Regulatory Framework for GDRs

The regulatory structure is multi-layered.

Important elements include:

• Companies Act, 2013

• applicable Companies Rules relating to GDRs

• Depository Receipts Scheme, 2014

• FEMA and Foreign Exchange Management (Non-Debt Instruments) framework

• RBI's Master Direction – Foreign Investment in India

• SEBI requirements where relevant

• rules of the overseas permissible jurisdiction and international exchange, where listed

The Government notified the Depository Receipts Scheme, 2014 on 21 October 2014, and it became effective from 15 December 2014. (dea.gov.in)

GDR and the Underlying Share

A GDR derives its economic value from the underlying eligible securities.

The GDR holder does not simply become identical in every respect to a directly registered holder of an Indian share.

Rights relating to:

• voting;

• dividends;

• conversion;

• corporate actions; and

• transfer

depend on the depository arrangement, issue terms, and applicable law.

For example, the Depository Receipts Scheme specifically deals with the right of DR holders to issue voting instructions in certain structures.

Corporate Benefits under GDRs

The underlying securities may generate:

• dividends;

• bonus entitlements;

• rights entitlements; or

• other corporate benefits.

The depository/custodian arrangement transmits the economic benefit to eligible GDR holders according to:

• issue terms;

• applicable law;

• taxation; and

• depository arrangements.

The amount ultimately received by the GDR holder can also be affected by currency conversion.

GDR Risks for Investors

A GDR investor can face several risks.

Underlying Equity Risk

If the value of the underlying Indian security falls, the GDR can also lose value.

Currency Risk

The GDR is foreign-currency denominated while the underlying company's business and shares may be rupee-linked.

Exchange-rate changes can influence investor returns.

Market Risk

GDR prices can change according to:

• company performance;

• market sentiment;

• global conditions; and

• liquidity.

Regulatory Risk

Foreign investment rules, sectoral limits, taxation, and overseas-market regulations can affect the instrument.

Liquidity Risk

Not every GDR has the same level of secondary-market trading activity.

What Is an Indian Depository Receipt?

An Indian Depository Receipt, or IDR, works in the opposite direction.

SEBI describes an IDR as a financial instrument denominated in Indian Rupees, created by a Domestic Depository against underlying equity of a foreign issuing company, allowing that foreign company to raise funds in the Indian securities market. (sebi.gov.in)

Therefore:

Foreign company's equity → held through overseas custodian → Domestic Depository issues IDRs in India → Investors hold IDRs

Basic IDR Structure

A simplified IDR arrangement is:

Foreign Issuing Company

↓

Underlying equity shares

↓

Overseas Custodian Bank

↓

Domestic Depository in India

↓

Rupee-denominated IDRs

↓

Investors in Indian Market

This is almost the mirror image of a GDR arrangement.

Important IDR Intermediaries

Overseas Custodian Bank

It holds the underlying equity shares of the foreign issuing company against which IDRs are issued.

Domestic Depository

It is a SEBI-registered custodian authorised by the foreign issuing company to issue the IDRs in India.

Merchant Banker

A SEBI-registered Merchant Banker performs due diligence and handles the prescribed filing process for the IDR issue.

SEBI's current FAQ expressly identifies these intermediaries in the IDR issue structure. (sebi.gov.in)

Current Regulatory Framework for IDRs

Important regulatory requirements arise from:

• Companies Act, 2013

• Rule 13 of the Companies (Registration of Foreign Companies) Rules, 2014

• SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018

• applicable FEMA/RBI foreign-investment framework

• SEBI listing and continuing-disclosure requirements

SEBI's ICDR Regulations, 2018 remain the key securities-market framework and were most recently shown by SEBI as amended on 21 March 2026. (sebi.gov.in)

Important Current IDR Conditions

SEBI's current published FAQ identifies important requirements including:

• issuer listed in its home country for at least the immediately preceding three years;

• track record of compliance with securities-market regulation in its home country;

• underlying equity shares listed, or to be listed, in the home country before listing of IDRs;

• minimum IDR issue size of ₹50 crore;

• only one denomination of IDR of an issuer at a given time;

• IDRs denominated only in Indian Rupees;

• in-principle listing approval;

• listing on at least one Indian stock exchange having nationwide terminals; and

• prescribed capital, market-capitalisation, and profitability requirements under the applicable Companies Rules. (sebi.gov.in)

SEBI's FAQ also states a minimum application amount of ₹20,000 and that at least 50% of the IDRs issued are to be subscribed by Qualified Institutional Buyers, with the balance available for non-institutional and retail categories under the framework. (sebi.gov.in)

Corporate Benefits under IDRs

The Domestic Depository plays an important role after issue.

When dividends or other corporate benefits are received in relation to the underlying shares, the Domestic Depository distributes the benefits to IDR holders according to their holdings and the terms of the offer document.

SEBI specifically identifies this responsibility in its current IDR guidance. (sebi.gov.in)

Conversion and Fungibility of IDRs

An IDR can, subject to the applicable regulatory framework, be converted or redeemed into the underlying foreign equity shares.

However, immediate unrestricted conversion is not available.

Current official SEBI/RBI material applies a one-year restriction before redemption/conversion and recognises limited two-way fungibility, subject to FEMA, SEBI, and prescribed procedures. (sebi.gov.in) (rbi.org.in)

What Is Fungibility?

Fungibility means the ability, subject to rules, to move between:

• Depository Receipts; and

• underlying shares.

Two-way fungibility means conversion can operate in both directions within the permitted framework.

It does not mean holders have unlimited conversion rights at all times.

GDR vs IDR – Core Comparison

Practical Banking Application

Case 1: Indian Company Wants Overseas Investors

An Indian company wants to raise capital from investors in an overseas permissible jurisdiction through receipts backed by its eligible Indian securities.

The relevant concept is:

GDR

The securities remain linked to India through the domestic custodian, while the foreign depository issues receipts abroad.

Case 2: Foreign Company Wants Indian Investors

A foreign company wants to raise capital in India and have rupee-denominated receipts listed in the Indian securities market.

The relevant concept is:

IDR

Case 3: Indian Company Directly Lists Shares Overseas

Do not automatically call this a GDR.

India now also has a separate Direct Listing Scheme, 2024, which permits eligible public Indian companies to directly list equity shares on specified international exchanges under that framework.

Direct listing of an equity share and issue of a GDR are different mechanisms. (dea.gov.in)

Why Companies Use Depository Receipts

Broader Investor Base

The issuer can reach investors outside its normal home market.

Capital Raising

Depository receipts provide an additional channel for raising capital.

International Visibility

An overseas issue can improve the issuer's profile among international investors.

Investor Convenience

The investor may gain exposure to a foreign company's equity through a familiar local or international market structure without initially dealing directly in the company's home-market shares.

Diversification

Investors can obtain exposure to companies from other countries.

Risks Common to GDRs and IDRs

Underlying Equity Risk

The value of the receipt depends significantly on the value of the underlying equity.

Currency Risk

Cross-border structures can expose returns to exchange-rate movements.

Regulatory Risk

Two or more regulatory systems may affect the receipt.

Liquidity Risk

The receipt and the underlying share may have different liquidity.

Price-Difference Risk

Market prices of the receipt and underlying share may temporarily diverge because of:

• currency movements;

• conversion restrictions;

• transaction costs;

• market hours; and

• liquidity.

Corporate-Action Complexity

Dividends, voting, rights, and other corporate actions pass through depository arrangements rather than operating exactly like a direct domestic shareholding.

CAIIB Exam Focus

GDR and IDR are mirror-image concepts.

GDR → Indian underlying security represented abroad.

IDR → Foreign underlying equity represented in India.

GDR is issued by a Foreign Depository.

IDR is issued by a Domestic Depository.

GDR under the DR Scheme is foreign-currency denominated.

IDR is denominated in Indian Rupees.

GDR underlying securities are held through a Domestic Custodian in India.

IDR underlying foreign shares are held through an Overseas Custodian Bank.

GDR does not mean direct overseas listing of the Indian share itself.

The Direct Listing Scheme, 2024 is a separate mechanism. (dea.gov.in)

IDRs are regulated primarily through the Companies framework, SEBI ICDR Regulations and FEMA/RBI provisions.

Current SEBI guidance specifies ₹50 crore as the minimum IDR issue size.

IDRs require Indian listing under the applicable framework.

IDR holders receive corporate benefits through the Domestic Depository.

Fungibility means permitted conversion between the receipt and underlying shares; it does not mean unrestricted conversion.

Common Exam Traps

Trap 1: GDR Is an Indian-Rupee Instrument Issued in India

Incorrect.

Under the Depository Receipts Scheme, GDRs are part of the foreign-currency-denominated overseas DR framework.

Trap 2: IDR Is Issued by an Indian Company Abroad

Incorrect.

IDR enables an eligible foreign company to access the Indian securities market.

Trap 3: GDR and IDR Have the Same Depository Direction

Incorrect.

GDR uses a foreign depository.

IDR uses a domestic depository.

Trap 4: GDR Holder Directly Holds the Underlying Indian Share in the Same Manner as a Registered Domestic Shareholder

Incorrect.

The GDR is a separate depository receipt backed by underlying securities held through the depository/custodian structure.

Trap 5: IDR Is Denominated in the Foreign Company's Home Currency

Incorrect.

IDRs are denominated in Indian Rupees.

Trap 6: GDR Means the Indian Share Itself Is Directly Listed Abroad

Incorrect.

A GDR is a depository receipt. Direct listing of Indian equity shares abroad now exists under a separate 2024 framework.

Trap 7: IDR Can Be Immediately and Freely Converted into Foreign Shares

Incorrect.

Conversion/redemption and fungibility are subject to regulatory conditions, including the applicable one-year restriction and FEMA/SEBI requirements.

Trap 8: GDR Allows Foreign-Investment Limits to Be Bypassed

Incorrect.

Applicable foreign-holding limits under FEMA continue to apply to underlying eligible instruments. (rbi.org.in)

Trap 9: IDR Holder Receives Corporate Benefits Directly from the Foreign Company Without Depository Involvement

Incorrect.

The Domestic Depository performs the prescribed distribution role.

Trap 10: Depository Receipts Eliminate Currency Risk

Incorrect.

Cross-border equity exposure can remain sensitive to exchange-rate changes.

Trap 11: GDR Is a Debt Instrument Merely Because It Is Called a “Receipt”

Incorrect.

A GDR backed by equity represents economic exposure to the underlying equity securities. It should not be confused with a bond or ordinary debt claim.

Trap 12: GDR and ADR Are Completely Identical Terms

Not exactly.

Both are depository receipts representing underlying securities, but ADR specifically relates to the US market structure, while GDR is the broader global depositary-receipt concept used outside the specific ADR framework.

Memory Technique

Remember the direction:

GDR = Goes Global

Indian securities move into a global depository-receipt structure for overseas investors.

IDR = Into India

A foreign company's equity exposure comes into the Indian market through a rupee-denominated receipt.

For intermediaries:

GDR → Foreign Depository + Domestic Custodian

IDR → Domestic Depository + Overseas Custodian

The easiest CAIIB rule is:

GDR = India → World

IDR = World → India