RBI revokes unrestricted access for FPIs to new 14-year and 30-year bonds

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Foreign portfolio investors (FPIs) will no longer have access to newly issued Indian government bonds with 14-year and 30-year tenors under the fully accessible route (FAR) with immediate effect, the Reserve Bank of India (RBI) said in a notification on Monday.

“On a review and in consultation with the Government, it has been decided to exclude all new securities of 14-year and 30-year tenors from the Fully Accessible Route. Consequently, future issuances of Government Securities in these tenors shall not be available for investment under the Fully Accessible Route,” the notification said.

Currently, foreign investors hold around $1 billion worth of existing 30-year bonds.

Investments by FPIs in the new 14-year and 30-year tenors will adhere to the existing investment limits set by the RBI, effective at the time of issuance.

However, existing 14-year and 30-year debt securities previously designated under the FAR will remain accessible to non-residents for investments in the secondary market, according to the notification.

“Existing stocks of Government Securities in 14-year and 30-year tenors already included as ‘specified securities’ under the Fully Accessible Route shall, however, continue to be available under the Fully Accessible Route for investments by non-residents in the secondary market,” the notification said.

FPI investment in FAR securities currently stands at Rs 2.01 trillion. It had crossed Rs 1 trillion on October 16, 2023. Only government bonds issued by the RBI under FAR are included in the index. All FAR-designated central government bonds maturing after December 31, 2026, are eligible.

Market participants said the inflows are expected to continue and may touch Rs 2.5 trillion in the next 5-6 months. Of the 38 bonds under FAR, only 29 meet the eligibility criteria for the JP Morgan bond index. It requires a face value of over $1 billion and a remaining maturity of more than 2.5 years.