RBI raises foreign investment limit in debt markets

The Reserve Bank of India (RBI) relaxed some of the rules for foreign institutional investors (FIIs) by raising investment limits in government securities and corporate bonds by $5 billion each, in its effort to bridge the current account deficit (CAD).

In addition, the RBI has overturned the condition of three-year lock-in period of the Government securities (G-Sec) at the time of first purchase. However, investments in short term paper like Treasury Bills are not permitted.

The limit for FII investment in corporate debt in other than infrastructure sector has been raised to $25 billion from $20 billion. However, the enhanced limit of $5 billion shall not be available for investment in Certificate of Deposits (CD) and Commercial Papers (CP).

Accordingly, the total corporate debt limit has been raised to $50 billion from $45 billion, with sub-limit of $25 billion each for infrastructure and other-than infrastructure sector bonds.

In addition, Qualified Foreign Investors (QFIs) shall 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 revised limit of $25 billion for corporate bonds for other than infrastructure sector shall be available for investment by FIIs and the long term investors like Sovereign Wealth Funds (SWFs), Multilateral Agencies, Endowment Funds, Insurance Funds, Pension Funds and Foreign Central Banks registered with SEBI.

The RBI has also 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 5-year residual maturity or minimum maturity requirement for investments by QFIs within the $3 billion limit has been modified to 3 years original maturity.

The measures come as India looks to attract foreign capital investment when the economy is seeing its slowest economic growth in a decade.

(Edited by Prem Udayabhanu)

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