FinMin eases norms for FII investments in infra sector

According to the finance ministry,while the lock-in period for the $5 billion investment window has been cut down from three years to one year,it will remain three years for the latter.

The finance ministry today relaxed the norms for foreign institutional investments (FII) in the infrastructure space by reducing the residual maturity and lock-in periods for investments in listed and unlisted bonds.

Under the new norms,FIIs will be allowed to invest up to $5 billion in long-term infrastructure bonds having an initial maturity of five years and a residual maturity of one year compared to five years residual maturity before. Further,FIIs will be permitted to invest a maximum of $17 billion in long-term infrastructure bonds of an equivalent initial maturity but with a residual maturity period of three years compared to five years before. According to the finance ministry,while the lock-in period for the $5 billion investment window has been cut down from three years to one year,it will remain three years for the latter.

The balance $3 billion will continue to remain open to qualified foreign investors (QFIs) for investing in mutual fund debt schemes that invest in infrastructure sector as was announced on August 9,2011.

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In May this year,the government had raised the FII investment limit to $25 billion for investments in listed and unlisted bonds from $5 billion before. The maturity period for these investments had been set at a minimum of five years and the lock-in period for three years. The scheme had been conceived to open new channels of funding for the infrastructure sector while deepening the corporate bond market.

However,with the government finding a tepid response to the scheme,the above changes have been introduced after consulting the Reserve Bank of India and the Securities Exchange Board of India (SEBI).

The government reckons that these measures would help kick-start FII flows into the long-term corporate bonds and facilitate funding of infrastructure projects. Despite the $25 billion ceiling,only $109 million entered the market through this route as on August 31 this year,a finance ministry release said.