The Reserve Bank of India (RBI) will review the foreign portfolio investment norms and come out with a new set of regulations, to be effective next April. RBI in a statement said that the new norms will facilitate the process of investment and hedging by Foreign Portfolio Investors (FPIs), keeping in view the macro-prudential parameters.
The central bank in its statement on developmental and regulatory policies, noted that the regulatory regime for FPI debt investments in India is a part of the larger framework for capital account management and said this framework has evolved over the years, influenced by capital flows and evolving macroeconomic conditions.
As per the RBI’s indication the limit on foreign ownership of bonds may be increased next fiscal, pointing to a likely decline in yields should the enhanced allocation find sufficient buyers, as investment caps in sovereign, state and corporate bonds are nearly exhausted because of the high real interest rate.
RBI said that regulatory changes to be finalised in consultation with the Government of India and the Securities Exchange Board of India (SEBI) will be effective from April 2018 and also decided to broaden non-resident centralised treasuries of multinational companies to hedge the rupee (INR) risk on current account transactions of their Indian subsidiaries, which is expected to facilitate internationalisation of the rupee by encouraging rupee invoicing of trade transactions while also encouraging non-residents to hedge INR risks onshore.