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  3. Govt likely to relax corporate bond norms to attract FII infows

Govt likely to relax corporate bond norms to attract FII infows

28 Jul 2011 Evaluate

The government may relax the norms for investment in corporate bonds as it is worried over the cool response from Foreign Institutional Investors (FIIs) over the infrastructure bonds. FIIs have only invested around $80 million in infrastructure bonds against the target of $25 billion.

The Government is considering reducing the lock-in period for such investment, currently the lock-in period is three years, and it is thinking to reduce it to two year or less than that.  The lock-in period is one of the reasons from others, which is wooing foreign investors from investing such bonds. In the lock-in period foreign investors cannot sell the bonds however they can trade it among themselves. However, the bonds must have a minimum five-year tenor for FIIs to invest in them, whereby the condition will continue to remain intact.

The Ministry of Finance has been making efforts to attract foreign investors to invest in infrastructure bonds. However, despite the efforts of finance ministry to raise the cap, FIIs have not showed interest for investing in infrastructure bonds. Till June 30, around $80 million or Rs 352 crore has been invested in India by FIIs. Finance ministry has raised the upper limit four times from $5 billion to $20 billion and again in this year’s budget it increased to $25 billion.

The under developed infrastructure has remained as concern for the government, and which is also hurting the pace of economic growth of the India. The government has been pushing private sector to raise funds to develop infrastructure such as roads, ports, enhancing the power sectors etc. For pooling of funds for infrastructure, finance ministry has announced setting up of Infrastructure Debt Funds (IDF) in his Budget speech, and the norms for IDF will be issued by SEBI and RBI.   

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