RBI eases FPI rules on corporate bonds to boost foreign inflows

Synopsis

The cardinal slope Thursday eased rules for overseas portfolio investors (FPI) to bargain section firm bonds by lifting caps connected short-term indebtedness concern limits astatine a clip complaint differentials betwixt India and the US are astatine the narrowest successful caller memory.

The cardinal bank Thursday eased rules for overseas portfolio investors (FPI) to bargain section firm bonds by lifting caps connected short-term debt concern limits astatine a clip complaint differentials betwixt India and the US are astatine the narrowest successful caller memory.

“On a review, and with a presumption to providing greater easiness of concern to FPIs, it has been decided to retreat the request for investments by FPIs successful firm indebtedness securities to comply with the short-term concern bounds and the attraction limit,” the Reserve Bank of India (RBI) said.

The revised rules, effectual immediately, are aimed astatine boosting FPI investments successful firm bonds. Latest NSDL information showed that FPIs utilised lone 14.5% of the disposable concern bounds arsenic connected May 7. The proportionality was 15.7% a twelvemonth ago.

“Easing of these rules will springiness FPIs flexibility connected however overmuch to put and successful which indebtedness securities without having to interest astir breaching regulatory caps,” said Meeta Kurpad, Partner, Cyril Amarchand Mangaldas. “This gives them the accidental to conception their portfolios and exit plans."

Before easing of these rules, investments by FPIs successful firm bonds with residual maturity of up to 1 twelvemonth was capped astatine 30% of the full concern of FPIs successful firm bonds. These limits were applied connected the end-of-day basis.

Similarly, investments successful firm indebtedness securities by an FPI (including its related FPIs) was capped astatine 15% of prevailing concern bounds for semipermanent FPIs and 10% for others.

"The relaxation is for the wide route,” Kurpad said. “The caps successful immoderate lawsuit didn’t use to investments successful the voluntary retention way (VRR), which has much concern flexibility.”

Long-Term Commitments

“The easing of rules seems to beryllium much of an enabling origin due to the fact that determination are investors who don’t privation to instrumentality a semipermanent credit risk,” said Soumyajit Niyogi, manager astatine India Ratings. “However, it is important to retrieve that inflows successful firm bonds, wherever determination is important recognition hazard compared with sovereign debt, yet beryllium connected interest rate differentials betwixt India and the US. Currently, the differential is the lowest successful caller times.”

In April, the cardinal slope reviewed the limits connected FPI concern successful authorities arsenic good arsenic firm bonds. The RBI maintained the existing headdress of 15% for firm bonds for the existent fiscal year.

Accordingly, the precocious bounds for overseas investments successful firm bonds was acceptable astatine Rs8.2 lakh crore for the archetypal fractional and Rs8.8 lakh crore for the 2nd half.

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