RBI revises the operational aspects of Investment by Foreign Portfolio Investors (FPI) in Debt

The Reserve Bank of India (RBI) vide circular dated April 27, 2018 has decide to revise the operational aspects of FPI investment which are set forth below.

(a.)  Revision of minimum residual maturity requirement

(i)     The minimum residual maturity requirement for Central Government securities (G-Secs) and State Development Loans (SDLs) categories has been withdrawn, subject to the condition that investment in securities with residual maturity below 1 year by an FPI under either category shall not exceed, at any point of time, 20% of the total investment of that FPI in that category.

(ii)   FPIs shall now be permitted to invest in corporate bonds with minimum residual maturity of above 1 year.

(b.)Revision of security-wise limit

The cap on aggregate FPI investments in any Central Government security, currently at 20% of the outstanding stock of that security, it is now revised to 30% of the outstanding stock of that security.

(c.)  Online monitoring of G-sec utilisation limits

Currently, FPIs are permitted to invest in G-Secs till the limit utilization reaches 90%, after which the auction mechanism is triggered for allocation of the remaining limit. 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. Utilisation of FPI limits shall be monitored online thereafter.

(d.)Concentration limit

Investment by any FPI (including investments by related FPIs), in each of the three categories of debt, viz., G-Secs, SDLs and corporate debt securities, shall be subject to the following concentration limits:

(i)     Long-term FPIs: 15% of prevailing investment limit for that category.

(ii)   Other FPIs: 10% of prevailing investment limit for that category.

(iii)In case an FPI has investments (INV0) in excess of the concentration limit on the effective date (date on which these concentration limits come into existence), it will be allowed the following relaxations, subject to availability of overall category limits, as a one-time measure:

a)         In case an FPI has investments (INV0) in excess of the concentration limit on the effective date, it will be allowed to undertake additional investments such that its portfolio size at any point in time (INVt) does not exceed INV0 plus 2.5% of investment limit for the category on the effective date. Once INVt falls below the prevailing concentration limit for the category, the FPI shall be free to make investments up to the applicable concentration limit.

b)         In case an FPI has investments (INV0) within the concentration limit, but in excess of 7.5% (12.5% in case of FPIs in the ‘Long-term’ sub-category) of the 3 investment limit for the category on the effective date, that FPI shall be allowed to undertake additional investments such that its portfolio size at any point in time (INVt) does not exceed INV0 plus 2.5% of the investment limit for the category on the effective date. Once INVt falls below the prevailing concentration limit for the category, the FPI shall be free to make investments up to the applicable concentration limit.

[RBI/2017-18/168 A.P. (DIR Series) Circular No. 24]

URL: https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NT16864DC2602F2834E29A64D4ADF6D41EA80.PDF