In an attempt to boost domestic bond market, the Reserve Bank of India (RBI) has withdrew a rule that mandated foreign portfolio investors (FPIs) to invest only in government bonds with a minimum residual maturity of three years. For corporate bonds, FPIs are now permitted to invest in bonds with minimum residual maturity of above one year as against minimum maturity of three years. The central bank has also revised the cap on aggregate FPI investments in any central government security to 30% from 20% of the outstanding stock of that security.
The minimum residual maturity requirement for central government securities (G-secs) and State Development Loans (SDLs) stands withdrawn, subject to the condition that investment in securities with residual maturity below 1 year by an FPI under either category should not exceed, at any point of time, 20 percent of the total investment of that FPI in that category. Currently, FPIs are permitted to invest in G-secs till the limit utilization reaches 90%, after which the auction mechanism is triggered for allocation of the remaining limit. With Clearing Corporation of India (CCIL) commencing online monitoring of utilisation of G-sec limits, it has been decided to discontinue the auction mechanism with effect from June 1, 2018. Thereafter, utilisation of FPI limits shall be monitored online.
With regard to single or group investor-wise limit in corporate bonds, investment by any FPI, including investments by related FPIs, should not exceed 50 percent of any issue of a corporate bond. FPIs should not have an exposure of more than 20 percent of its corporate bond portfolio to a single corporate including exposure to entities related to the corporate. No FPI shall invest in partly paid instruments and these directions would be applicable with immediate effect.
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