RBI for increasing FII cap in govt bonds

Reserve Bank of India will have a calibrated approach regarding increasing foreign institutional investment limit in government bonds, deputy governor of the central bank HR Khan said on Friday.

Currently, FIIs are allowed to invest up to $10 billion in government bonds and the limit has been almost exhausted in the first half of 2011-12.

“We are not ruling it out, we are moving in a calibrated manner. I have no comments on the time frame,” Khan said at the sidelines of banking seminar Bancon.

The government and the central bank are in talks to increase the FII limit as yields on government securities have hardened following enhanced borrowing plan of the government. The government has announced Rs 53,000-crore extra borrowings in the October-March period.

“There are views on foreign funds coming to debt market. We have a hierarchy of flows. First preference is FDI which is a stable source of funds. Second preference is FII and third preference is debt,” Khan said.