Enhancement in the Debt Investment Limit for FIIs and Long-Term Investors

The Reserve Bank of India (RBI) has enhanced the debt investment limit for foreign institutional investors (FIIs) and long-term investors from $65 billion to $75 billion.

The RBI has put the condition whereby FIIs and long-term investors were required to invest in government securities (G-Secs) of three years residual maturity at the time of first purchase. The central bank has also reduced the residual maturity requirements for investment in corporate bonds. The enhancement in debt investment limits for FIIs and long-term investors comes in the backdrop of the country’s deteriorating external position.

Government Securities & Corporate debt

The enhanced investment sub-limit for investment by FIIs and long-term investors in Government Securities (G-Secs) has been set at $15 billion (up from $10 billion earlier). However, these entities cannot invest in short-term papers such as Treasury Bills under this sub-limit. Besides this sub-limit, FIIs have a separate sub-limit for investing up to $10 billion in government securities without any conditions and the same has been left unchanged. Sovereign wealth funds, multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks registered with the markets regulator are classified as long-term investors.

The investment limit by FIIs in corporate debt in other than infrastructure sector has been enhanced to $25 billion from $20 billion. The RBI has also included investment by long-term investors within this enhanced investment limit. The new limit in corporate debt in other than infrastructure sector will not be available for investment in certificate of deposits and commercial paper.

After the enhancement in the abovementioned investment limit, the total corporate debt investment limit for FIIs and long-term investors has been upped from $45 billion to $50 billion ($25 billion each for infrastructure and other than infrastructure sector bonds).

Lock-in period

Within the overall limit of $25 billion for foreign investment in infrastructure corporate bonds, the central bank has decided to dispense with the one-year lock-in condition for the limit of $22 billion, including $10 billion for non-resident investment in infrastructure debt funds. Further, the five years residual maturity requirement for investment by qualified foreign investors (QFIs) for the balance $3 billion investment has been lowered to three years.