RBI removes short-term investment limits for FPIs in corporate debt

The RBI has removed short-term and concentration limits on FPI investments in corporate debt to ease access and deepen market participation

The Reserve Bank of India (RBI) on Thursday scrapped “short-term investment limit” and “concentration limit” for investments by foreign portfolio investors (FPIs) in corporate debt securities, to provide greater ease of investment to FPIs.

 

“On a review, and with a view to providing greater ease of investment to FPIs, it has been decided to withdraw the requirement for investments by FPIs in corporate debt securities to comply with the short-term investment limit and the concentration limit,” the central bank said in a notification.

 

These revised norms will come into effect immediately.

 

Currently, investments by any FPI, including investments by related FPIs, cannot exceed 50 per cent of any issue of a corporate debt security.

 

Market participants described the move as a positive step toward deepening the corporate bond market, though its impact will also depend on the attractiveness of yields.

 

“This is a very positive step to deepen the corporate bond market, but it depends upon how FPIs will react to that, because yields have to be attractive for them. If we look at March and April data, FPIs withdrew money from debt because of the narrowing of the yield spread,” said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP.

 

Foreign investors net sold around ₹14,379 crore worth of domestic debt in April as the yield spread between US 10-year benchmark bond and domestic 10-year benchmark bond narrowed below 200 basis points (bps).

 

They pulled out ₹13,314 crore via debt-general limit route, NSDL data showed. This month, FPIs have net sold around ₹3,177 crore as of Wednesday (May 7) via general limit route. However, they have net bought ₹781 crore during the same period under the fully accessible route (FAR).

 

Foreign investors had net sold the highest amount of ₹11,139 crore worth of Indian government securities designated under the FAR in April since the official inclusion of domestic securities in the J P Morgan indices.