Stepping up efforts to make the Indian markets more attractive to global investors, the Reserve Bank of India (RBI) has proposed to allow overseas investors to hedge their currency risk in local exchanges, a move which will lower entry costs for foreigners and help to improve risk mitigating environment in the country. At present, the RBI is in final discussion with market regulator Securities and Exchange Board of India (Sebi) to finalise the proposal.
The central bank proposed to permit foreign investors to hedge the coupon receipts on domestic bond holdings for up to the next 12 months. Further, to flush out yield-chasing, the RBI has planned to bar short-term investors from investing in treasury bills, where most of the foreign money has rushed in recently. The RBI’s notification further stated that in order to encourage longer-term flows and reduce volatility foreign portfolio investments in government securities will henceforth be permitted only in dated securities of maturity more than one year.
The RBI further added that any investment limit for overseas investors vacated at the shorter end will be available at longer maturities, so overall foreign portfolio investor (FPI) limits will not be diminished. So far this year, foreign investors have invested up to $5.76 billion in Indian securities particularly short-term treasury bills. Foreign investors can invest up to $30 billion in government papers, out of which investment limit for treasury bills is $5.5 billion. Overseas investors have exhausted 87.16% of their treasury bills limit.
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