RBI relaxes rules for FII in debt

January 30th, 2013

 

The Reserve Bank of India (RBI) has notified certain relaxations in the rules for FII in debt, these are:

• The investment limit in Government Securities (G-Secs) by Foreign Institutional Investors (FIIs) and long-term investors has been enhanced by $5 billion to $25 billion from current $20 billion.
• The investment limit in corporate bonds by FIIs has also been increased by $5 billion $50 billion from current $45 billion.

• Investment rules have been eased by removing the maturity restrictions for first time foreign investors on dated G-Secs. Earlier, first time foreign investors of G-Secs were mandated to buy securities with at least 3-year residual maturity. However, such investments will not be allowed in short-term paper like Treasury Bills.
• Foreign investors are also restricted from buying certificates of deposits and commercial paper.
• The RBI specified a sub-limit of $25 billion each for infrastructure and other than infrastructure sector bonds within the total corporate debt limit of $50 billion.
• Qualified Foreign Investors (QFIs) will remain 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.
• Foreign investors have been dispensed 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 5-year residual maturity requirement for investments by QFIs within the $3 billion limit has been brought down to 3 years original maturity.

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