RBI raises foreign investor participation in G-Secs

The Reserve Bank of India today announced a slew of measures to raise exposure of Foreign Portfolio Investors (FPI) in government securities, a move that will help in softening yields.

The cap on aggregate FPI investments in any central government security, currently at 20 per cent, stands revised to 30 per cent of the outstanding stock of that security, the RBI said in a late night notification.

"FPIs were required to invest in corporate bonds with a minimum residual maturity of three years. Henceforth, FPIs are permitted to invest in corporate bonds with minimum residual maturity of above one year, it said.

It said the minimum residual maturity requirement for central government securities (G-secs) and State Development Loans (SDLs) stands withdrawn, subject to the condition that investment in securities with residual maturity below 1 year by an FPI under either category should not exceed, at any point of time, 20 per cent of the total investment of that FPI in that category.

So far, FPIs were required to invest in government bonds with a minimum residual maturity of three years, it said.

With Clearing Corporation of India Ltd. (CCIL) commencing online monitoring of utilisation of G-sec limits, it has been decided to discontinue the auction mechanism with effect from June 1, 2018, it said, adding that utilisation of FPI limits would be monitored online.

Currently, FPIs are permitted to invest in G-secs till the limit utilization reaches 90 per cent, after which the auction mechanism is triggered for allocation of the remaining limit, it said.

With regard to single or group investor-wise limit in corporate bonds, it said, investment by any FPI, including investments by related FPIs, should not exceed 50 per cent of any issue of a corporate bond.

FPIs should not have an exposure of more than 20 per cent of its corporate bond portfolio to a single corporate including exposure to entities related to the corporate, it said.

No FPI shall invest in partly paid instruments, it said, adding that these directions would be applicable with immediate effect.