By 17 February, 2014
RBI lowers FIIs investment cap in commercial papers to $2B

The Reserve Bank of India has lowered the sub-limit for foreign institutional investors (FIIs) to invest in commercial papers to $2 billion from existing $3.5 billion, in a bid to encourage long-term foreign investment in corporate debt, the central bank said in a notification.

Commercial paper refers to short-term instruments maturing within a year. Presently, the FIIs can invest up to $51 billion in local corporate bonds with sub-limit of $3.5 billion for investment in commercial paper as part of this limit.

Currently the sub-limit of commercial papers is only being used to the extent of nearly 58 per cent. The lower ceiling for commercial paper will allow FIIs to put more money in other forms of corporate debt.

“The balance $1.5 billion shall, however, continue to be part of the total corporate debt limit of $51 billion and will be available to eligible foreign investors for investment in corporate debt,” RBI noted.

This ceiling would be applied to SEBI registered FIIs, qualified institutional investors and long-term investors such as pension funds, insurance funds, endowment funds, sovereign wealth funds and other central banks.

The new cap has come into force with immediate effect.

Last month, RBI had raised the sub-limit of investment in government securities for long-term investors to $10 billion from earlier $5 billion.

(Edited by Joby Puthuparampil Johnson)

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