RBI, govt in talks on medium-term framework for FPI limit in debt

Framework will create space for participation of different kinds of investors, says Raghuram Rajan

Reserve Bank of India (RBI) Governor Raghuram Rajan on Tuesday said they were in talks with the government about a medium-term framework for  foreign portfolio investor (FPI) limits in debt securities. In his monetary policy statement, Rajan said this will include a target for what fraction of  the bond market will be constituted by FPIs in the medium term.

He added there would be an announcement of staggered change in limits every six months with these being released on a monthly or quarterly basis. These limits would be specified in rupees so that they do not vary with exchange rate movements.

“Overall goal of this medium-term framework will be to enlist FPIs in market development, within prudential limits that we set even as they're attracted as rates available in Indian bonds,” said Rajan.

The governor said the framework will create space for participation of different kinds of investors, which include long-term investors such as pension funds and sovereign wealth funds as well as the usual more medium-term investors and importantly those coming through international central security depositories such as Euroclear and Clearstream.

However he said that RBI will wait for suitable market conditions including greater certainty about US Fed's action and appropriately liquidity conditions in Indian markets before making a public announcement.