Sebi issues norms to hike FPI investment limit

With the Reserve Bank of India (RBI) easing foreign ownership in government debt, markets regulator Securities and Exchange Board of India (Sebi) on Tuesday issued detailed guidelines for hiking the overseas investment limits in such securities to Rs 1,86,500 crore by January 1, 2016.

Sebi has said there will be a separate limit for investment by all Foreign Portfolio Investors (FPIs) in the state development loans (SDLs). It has been decided to enhance the limit for investment by FPIs in government securities in two tranches from October 12, 2015 and January 1, 2016.

"Debt limits of Rs 3,500 crore each would be released on October 12, 2015 and January 1, 2016, respectively under this category," it added. In addition, Sebi said that the limit for FPIs in central government securities would be hiked to Rs 1,29,900 crore and Rs 1,35,400 crore on October 12 and January 1, 2016, respectively, from the existing limit of Rs 1,24,432 crore.

Further, Sebi said the limit for long term FPIs (sovereign wealth funds, multilateral agencies, insurance funds, pension funds and foreign central banks) in government securities would be increased to Rs 36,600 crore and Rs 44,100 crore on October 12 and January 1, respectively. Currently, the existing limit is Rs 29,137 crore for long term FPIs.

Earlier in the day, the RBI had also relaxed norms of FPI investment in government debt.

With regard to FPI investments in central government securities, it has also been decided to prospectively put in place a security-wise limit of 20 per cent of the amount outstanding under each such security. Existing investments, where aggregate FPI investment is over 20 per cent, may continue.

However, fresh purchases by such investors in these securities would not be permitted till the corresponding security-wise investments fall below 20 per cent.

Central government securities in which the aggregate FPI investment is more than 20 per cent of the outstanding would be placed in a negative investment category, in which fresh investments would not be permitted.

This negative investment list, as well as the aggregate security-wise holdings by FPIs at the end of every day, will be made available by the depositories on their websites. The security-wise limit would be effective from October 12.

In a circular, Sebi said all future investments by long-term FPIs, including the limits vacated when the current investment by such FPIs "runs off either through sale or redemption, shall be required to be made in central government securities having a minimum residual maturity of three years." The stipulation on minimum residual maturity of three years would also apply to SDLs.

The free limit as on October 9, within Rs 1,24,432 crore limit along with the new debt limits of Rs 5,468 crore, would be auctioned on the exchange platform on October 12.

Besides, the incremental limit of Rs 7,463 crore for long-term FPIs will be available for investment on tap, while separate additional limit for SDLs will also be available for investment on tap by FPIs from October 12.