Reserve Bank eases rules for FII investment in debt market

The Reserve Bank of India has made it easier for foreign institutional investors (FIIs) to invest in the domestic equity and debt markets.

The Reserve Bank of India (RBI) has 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. Long-term investors include SEBI-registered sovereign wealth funds (SWFs), multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks. The RBI has 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.

It has also hiked the investment limit in corporate bonds by these entities by $5 billion $50 billion from $45 billion. FIIs can now approach any Category-I dealer bank, authorized to deal in foreign exchange, for hedging their currency risk on the market value of their entire investment in equity and/or debt.

As a measure of further relaxation, 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.