To encourage long-term foreign fund flows, the Reserve Bank on Tuesday prohibited foreign investors from buying government securities having maturity of less than one year.
“Investments by FPIs in G-Secs shall henceforth be permitted only in dated securities of residual maturity of one year and above, and existing investment in Treasury Bills will be allowed to taper off on maturity/sale,” the Reserve Bank of India (RBI) said in its monetary policy document.
The RBI has been rationalising and expanding limits for foreign portfolio investor (FPI) investments in debt markets.
To encourage longer maturity flows, investment limits in Treasury Bills were capped at $ 5.5 billion in April, 2013.
Later in June, the limit for long-term investors was increased by $ 5 billion.
FPI is a new umbrella class for foreign institutional investors (FIIs), sub account and qualified foreign investors.
The overall limit for FPI investment in G-Secs will, however, remain unchanged at $ 30 billion so the investment limits vacated at shorter end will be available at longer maturities, the RBI said.
The central bank also proposed simplifying know-your-customer (KYC) procedures for opening bank accounts by FPIs.
On foreign direct investment (FDI), the RBI has decided to withdraw all existing guidelines relating to valuation in case of acquisition or sale of shares and accordingly such transactions will henceforth be based on acceptable market practices.
Operating guidelines will be notified separately, it added.
RBI further said it will continue to work to ease entry while reducing risk from the volatility of flows.
“The modalities for allowing FIIs to hedge their currency risk by using exchange traded currency futures in the domestic exchanges are being finalised in consultation with the Securities and Exchange Board of India (SEBI),” it said.
In order to enhance hedging facilities for foreign investors in debt instruments, it is proposed to allow them to hedge the coupon receipts falling due during next 12 months.
Rebooking of cancelled contracts in case of contracted exposures has been fully restored.
It is further proposed, RBI said, to allow all resident individuals, firms and companies with actual foreign exchange exposures to book foreign exchange derivative contracts up to $ 250,000 on declaration.