Mumbai: To attract foreign funds into the bond market, the Reserve Bank of India ( RBI) on Thursday raised the ceiling for foreign institutional investors (FII)’s holdings in government securities and corporate bonds by $5 billion each. The cap on domestic debt now stands at $75 billion.
Bond dealers and treasury executives said the interest of FIIs had been robust. The additional capital flows would help tackle the high current account deficit, which stood at a record 5.4 per cent of the gross domestic product in the quarter ended September.
The three-year lock-in period for FIIs purchasing government securities (G-secs) for the first time has been done away with, RBI said.
The sub-limit of $10 billion for investment by FIIs in G-secs was enhanced by $5 billion, it added, while the cap on corporate debt other than in the infrastructure sector was raised from $20 billion to $25 billion.
With rises of $5 billion in each of the two categories, FIIs and long-term investors can now invest $25 billion in G-secs and $50 billion in corporate debt instruments, including the sub-limit of $25 billion for infra bonds.
RBI said though the residual maturity condition would not be applicable on the entire sub-limit (in G-secs) of $15 billion, such investments would not be allowed in short-term papers such as treasury bills.
The overall FII limit for domestic debt is distributed through a host of categories across government, corporate and infrastructure debt. Long-term investors include sovereign wealth funds, multilateral agencies, pension funds and foreign central banks.
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