Financial PlanningFixed Income Securities

RBI raises foreign investment limits in bonds, tweaks rules

Posted Gopal Gidwani

The Reserve Bank of India has increased the investment limit of FPI in government bonds along with tweaking rules to attract more long term investments in future. The central bank has increased the limit of investment in FPI by Rs. 110 billion. Now the Foreign Portfolio Investors limit is 4.7% or Rs. 2.42 trillion. Earlier the FPI investment limit was 2.31 trillion. This has been done for this quarter or Q2 of the financial year 2017. RBI aims to increase the foreign capital inflows by increasing the FPI limit in government securities.

Looking at the category wise, as a part of additional limits, the central bank has increased the investment limits for the general category FPI’s by Rs. 28 billion. Hence the total limit of the FPI investment in the general category would be Rs. 1.88 trillion now. Similarly, RBI has raised the investment limits for the long-term category FPI’s by Rs. 82 billion. Now, the total limit of the FPI investment in the long term category will be Rs. 543 billion.

On the parallel lines, the Reserve Bank said that the foreign portfolio investors (FPIs) will be permitted to increase the investment in State Development Loans (SDLs) by Rs. 61 billion to Rs. 331 billion for the Q2 quarter of the current FY17. This makes the overall limit of FPI investment at a whopping Rs. 2,751 billion which was earlier Rs. 2,580 billion in the government bonds. This directive had been issued on July 4 2017.

As the Indian stock market news says, the market regulator SEBI is working on the new guidelines and will soon be declaring the operational norms and rules regarding the allocation and monitoring of limits of the increased FPI investment in the government securities and state development loans.

RBI also points out that any increases in the limit for FPI investment in the government bonds in future will be assigned in the ratio of 75% in case of a long term category of FPIs and 25% for the general category of Foreign Portfolio Investments. Earlier 60% of the increased limit was for long term investors. The legal news confirms that this rule is a part of occasional changes in the investment rules by the RBI and it has been done for the purpose of blending the approach to FPI investments in SDL’s with government bonds. To name some long term FPIs, they are Sovereign Wealth Funds, Multilateral Agencies, Endowment Funds, Insurance Funds, Pension Funds and Foreign Central Banks.

To add more, the central bank has also removed the movement of not utilised limits from the long term category to the general category of FPIs.

This increase in the limit of FPI investment in central government securities has been introduced in accordance with the Reserve Bank of India’s review of the MDF or medium term framework with relation to investment of FPIs in government securities. The medium term framework for FPI investment in government securities or G-secs and SDLs was started in the month of October in the year 2015.

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