RBI relaxes norms of FPI investment in govt debt

Mumbai: Easing norms for foreign ownership of government debt, RBI Tuesday announced higher investment limits in rupee terms in government securities by FPIs with a view to bringing in an additional Rs 1.2 lakh crore by March 2018.

The announcement follows a decision by RBI to fix FPI investment limits in rupee terms and raise it in phases to reach 5 percent of the outstanding stock by March 2018.

"The limits for FPI (foreign portfolio investors) investment in debt securities will henceforth be announced/ fixed in rupee terms," RBI said in a notification.

In aggregate terms, RBI said: "This is expected to open up room for an additional investment of Rs 1.2 lakh crore billion in the limit for central government securities by March 2018 over and above the existing limit of Rs 1.5 lakh crore for all government securities."

For the current fiscal, RBI said it has been decided to enhance the limit for investment by FPIs in G-secs in two tranches from October 12, 2015 and January 1, 2016.

The limit will be increased from Rs 1.53 lakh crore to Rs 1.7 lakh crore from October 12 and Rs 1.86 lakh crore from January 1.

Additionally, RBI said there will be a separate limit for investment by all FPIs in the state development loans (SDLs), to be raised in phases to reach 2 percent of the outstanding stock by March 2018.

This will amount to an additional limit of about Rs 50,000 crore by March 2018.

The limits for investment by FPIs in G-secs were last raised to USD 30 billion in June 2013.

The changes are in line with the Medium Term Framework (MTF) for FPI limits in G-secs "to provide a more predictable regime". The MTF was announced by RBI in the fourth bi-monthly monetary policy for the fiscal on September 29.

RBI said the effective increase in limits for the following two quarters will be announced every half year in March and September.

"Aggregate FPI investments in any central government security will be capped at 20 percent of the outstanding stock of the security.

"Investments at existing levels in the securities over this limit may continue, but not get replenished through fresh purchases by FPIs till these fall below 20 percent," it said.

Operational guidelines relating to allocation and monitoring of limits will be issued by the Securities and Exchange Board of India (Sebi).

For the moment, RBI said, the security-wise limit for FPI investments will be monitored on a day-end basis and those central government securities in which aggregate investment by FPIs exceeds the prescribed threshold of 20 percent will be put in a negative investment list.

"No fresh investments by FPIs in these securities will be permitted till they are removed from the negative list. There will be no security-wise limit for SDLs for now," RBI said.