With an aim to attract more overseas flows, the Reserve Bank of India (RBI) has eased investment norms for foreign portfolio investors (FPIs) in debt, especially into individual large corporates. More overseas inflow will help to arrest recent fall in rupee and also lift recent fall in demand for corporate bonds.
The FPIs cap on investment in government security has been revised to 30% of outstanding stock of that security, from 20% earlier. As per the revised minimum residual maturity requirement, FPIs are permitted to invest in Central Government securities (G-secs), including in Treasury Bills, and State Development Loans (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% of the total investment of that FPI in that category.
Besides, FPIs are permitted to invest in corporate bonds with minimum residual maturity of above one year, subject to the condition that short-term investments in corporate bonds by an FPI shall not exceed 20% of the total investment of that FPI in corporate bonds. These stipulations would not apply to investments in SRs by FPIs. Further, RBI noted that short-term investments shall not exceed 20% of total investment by an FPI in any category applies on an end-of-day basis. At the end of any day, all investments with residual maturity of up to one year will be reckoned for the 20% limit. RBI also said that Short-term investments by an FPI may exceed 20% of total investments, only if the short-term investments consist entirely of investments made on or before April 27, 2018; that is, short-term investments do not include any investment made after April 27, 2018.