Reserve Bank eases rules for FII investment in debt

The Reserve Bank of India (RBI), on Thursday, notified the enhanced limit of investing in government securities (G-Secs) by foreign institutional investors (FIIs) and long-term investors by $5 billion to $25 billion from $20 billion.

It also hiked the investment limit in corporate bonds by these entities by $5 billion $50 billion from $45 billion.

Long-term investors include SEBI-registered sovereign wealth funds (SWFs), multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks.

The RBI also relaxed some investment rules by removing the maturity restrictions for first time foreign investors on dated G-Secs. Earlier it was mandated that the first time foreign investors of G-Secs must buy securities with at least three-year residual maturity. “But such investments will not be allowed in short-term paper like Treasury Bills,” the RBI added.

Further, the central bank has also restricted foreign investors from buying certificates of deposits and commercial paper.

In the total corporate debt limit of $50 billion, the RBI stipulated a sub-limit of $25 billion each for infrastructure and other than infrastructure sector bonds. In addition, qualified foreign investors (QFIs) would continue to be eligible to invest in corporate debt securities (without any lock-in or residual maturity clause) and mutual fund debt schemes, subject to a total overall ceiling of $1 billion.

“This limit of $1 billion shall continue to be over and above the revised limit of $50 billion for investment in corporate debt,” the RBI added.

As a measure of further relaxation, it has been decided to dispense with the condition of one year lock-in period for the limit of $22 billion (comprising the limits of infrastructure bonds of $12 billion and $10 billion for non-resident investment in IDFs) within the overall limit of $25 billion for foreign investment in infrastructure corporate bond.

The residual maturity period (at the time of first purchase) requirement for the entire limit of $22 billion for foreign investment in the infrastructure sector has been uniformly kept at 15 months. The five-year residual maturity requirement for investments by QFIs within the $3 billion limit has been modified to three years original maturity.

Maturity restrictions for first time foreign investors on dated G-Secs removed

Removal of rules requiring FIIs to hold infrastructure debt for at least one year