RBI revises limits for investment in debt instruments by FPI

The Reserve Bank of India has revised the limits on investment in debt instruments by foreign portfolio investors (FPI).

The revision comes into effect immediately. And, the revision is done in consultation with the Government of India.

The move comes in the wake of an earlier announcement to have a detailed review of current regulations on debt investment by Foreign Portfolio Investors (FPI) to facilitate the process of investment and hedging by FPIs.

The details are given below.

1. The limit for FPI investment in Central Government securities (G-secs) would be increased by 0.5% each year to 5.5% of outstanding stock of securities in 2018-19 and 6% of outstanding stock of securities in 2019-20.

2. The limit for FPI investment in state development loans (SDLs) would remain unchanged at 2% of outstanding stock of securities.

3. The overall limit for FPI investment in corporate bonds will be fixed at 9% of outstanding stock of corporate bonds. All the existing sub-categories under the category of corporate bonds will be discontinued, and there would be a single limit for FPI investment in all types of corporate bonds.

4. No fresh allocation has been made to the ‘long-term’ sub-category under SDLs. Out of the existing limit of ₹ 13,600 crore for this sub-category, an amount of ₹ 6,500 crore has been transferred to the G-secs category.

5. The allocation of increase in G-sec limit over the two sub-categories – ‘general’ and ‘long-term’ – remains at the current ratio of 25:75. However, based on an assessment of investment interest, this ratio has been re-set at 50:50 for the year 2018-19.

6. Coupon reinvestment by FPIs in G-secs, which was hitherto outside the investment limit, will now be reckoned within the G-sec limits. FPIs may, however, continue to reinvest coupons without any constraint, as they do now. Only at the time of periodic re-setting of limits, coupon investments would be added to the amount of utilization. Accordingly, for the year 2018-19, the stock of coupon investment of ₹ 4,760 crore as on March 31, 2018, would be added to the actual utilization under the ‘general’ sub-category of G-secs. Since this is a new policy, as a one-time measure, the investment limit in the ‘general’ sub-category of G-secs has been increased by an amount equal to the stock of coupon reinvestment as on March 31, 2018.