RBI eases norms for FPIs to invest in debt; to help RE, Corp bonds

Mumbai: The Reserve Bank has eased investment norms for foreign portfolio investors (FPIs) in debt, especially into individual large corporates, a move that can help attract more overseas flows and thereby help arrest the recent fall in the rupee on one hand and also lift the recent fall in demand for corporate bonds.

FPIs are allowed to invest in various debt market instruments such as government bonds, treasury bills, state development loans and corporate bonds, but with certain limits and restrictions.

The RBI increased the FPIs cap on investment in government security to 30 per cent of the outstanding stock of that security, from 20 per cent earlier. FPIs were allowed to invest in government bonds with a minimum residual maturity of three years.

"Henceforth, FPIs are permitted to invest in Government securities (G-secs), including treasury bills, and SDLs without any minimum residual maturity requirement, subject to the condition that short-term investments by an FPI under either category shall not exceed 20 per cent of the total investment of that FPI in that category," RBI said in a notification last evening.

Short-term investments are defined as investments with residual maturity up to one year.

In the corporate bond segment, FPIs are allowed to invest with a minimum maturity of three years. RBI has now allowed FPIs to invest in corporate bonds with minimum residual maturity of above a year.

However, it has kept a condition that short-term investments in corporate bonds by an FPI shall not exceed 20 per cent of the total investment of that FPI in corporate bonds.

The requirement that short-term investments shall not exceed 20 per cent of total investment by an FPI in any category applies on an end-of-day basis.