FPI Limit In G-Secs: RBI Hikes Foreign Investment Limit In Government Bonds
Foreign portfolio investors can now buy more Indian government and corporate debt.
The Reserve Bank of India said it would increase the FPI investment limit in central government bonds to 5.5 percent in 2018-19 from 5 percent in two tranches, according to a notification on the central bank’s website. The FPI limit would then be increased to 6 percent of the outstanding stock in 2019-20.
RBI decided not to raise the limit for FPI investment in state development loans. That was kept unchanged at 2 percent.
The overall limit for FPI investment in corporate bonds will be fixed at 9 percent of the outstanding stock, the central bank said. The FPI limit in corporate bonds would hence go up to Rs 2.66 lakh crore in the first half of fiscal 2018 from Rs 2.44 lakh crore currently. That would again be raised to Rs 2.89 lakh crore in the second half of 2018-19.
The decision to raise the caps comes at the start of a financial year in which the government will seek to borrow more than Rs 6 lakh crore from the markets. This against the backdrop of tightening liquidity conditions and subdued demand for government debt from local banks.
Japanese brokerage Nomura had earlier said that India’s government bond dynamics would be largely dependent on demand from foreign investors and decisions by the RBI. That’s because commercial banks, the driver of bond sales, have lost appetite as they are flushed with liquidity.