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RBI proposes tweaking FII debt limits

These proposals are intended to boost foreign inflows into debt markets

Reuters  |  Mumbai 

The has proposed to the finance ministry reducing the minimum lock-in investment periods for as a way to boost inflows and help protect a weakening rupee, a senior official said on Tuesday.

The Reserve Bank of India has also proposed recasting the investment limits within the country's existing categories, an official with direct knowledge of the told Reuters, given more than a third of foreign investment limits across all Indian categories are unutilised.

He declined to be identified because the have not been publicised. The finance ministry would make the final decision on these suggestions.

The two are intended to boost foreign inflows into markets, without raising the overall amounts held by foreign investors.

They are part of the RBI's suggestions to increase foreign inflows into the country and help support a rupee that has recently dropped to record lows against the dollar.

Shortening the lock-in periods could make Indian holdings more attractive for foreign investors, especially at a time when global risk aversion is making some wary of long-term bets.

For example, some types of infrastructure bonds currently have a 3-year lock in period, which analysts had said reduces the appeal of these investments.

Furthermore, by recasting the limits within categories, the could increase limits for bonds that are attracting more demand from foreign investors, such as government or corporate with no lock-ins.

The could then reduce limits that are proving less popular. At the moment, despite a $17 billion cap for corporate infrastructure bonds with three year lock-in periods, this category has seen virtually no demand from foreign investors.

India allows foreign investors to buy up to $20 billion in general corporate debt, $25 billion in infrastructure debt, and $15 billion in broader government

First Published: Tue, May 29 2012. 15:33 IST