RBI increases foreign investment limits in govt securities & bonds
Published: Jul 04, 2017
By TIOLCORP News Service
NEW DELHI, JULY 04 2017: The Reserve Bank of India (RBI), yesterday, increased the investment by Foreign Portfolio Investments (FPIs) in Central Government Securities (G-secs) and State Development Loans (SDLs) for the quarter July-September 2017 by INR 110 billion and INR 61 billion, respectively, mainly with a view to increase foreign capital inflows. Market regulator Securities and Exchange Board of India (SEBI) will issue the operational guidelines relating to allocation and monitoring of limits of the enhanced FPI investment in the G-secs and SDLs.
The current Medium Term Framework (MTF) for FPI investment in G-secs and SDLs was introduced in October 2015. Currently 'long term' category of FPI investors accounts for about 20% of the total investment by FPIs in G-secs. In order to recalibrate the framework to meet the objective of a preference for long-term investors and also with a view to manage the macro-prudential implications of evolving capital flows, the MTF has been reviewed.
As part of occasional changes to investment rules, the RBI increased the limit for FPI investment in G-secs by allocating 75% for 'Long-Term' category of FPIs and 25% for ‘General' category. Further, RBI stated that the overall cap of 5% for G-Secs and 2% for SDLs remains unchanged.
The RBI added it would end the practice of transferring unutilised limits from the 'long-term' category to the 'general' category.
The revisions will be effective from July 4, 2017, RBI added.
RBI said that to harmonize the approach to FPI investments in SDLs with that for G-secs, future increases in SDLs would be in the ratio of 75% for ‘Long Term' category and 25% for ‘General' category of FPIs. All other existing conditions, including the security-wise limits, investment of coupons being permitted outside the limits and investments being restricted to securities with a minimum residual maturity of 3 years, will continue to apply.
See Notification