Reserve Bank of India hikes FII limit in govt securities, corp bond by $5 billion

The Reserve Bank today hiked FII investment limits in government securities and corporate bonds by USD 5 billion each, taking the total cap in domestic debt to USD 75 billion, with a view to bridging the current account deficit.

Further liberalising the norms, the three-year lock-in period for foreign institutional investors (FIIs) purchasing government securities (G-Secs) for the first time has been

done away with, RBI said.

The sub-limit of USD 10 billion for investment by FIIs and long-term investors in G-Secs stands enhanced by USD 5 billion, it said.

The limit in corporate debt, other than infrastructure sector, stands enhanced from USD 20 billion to USD 25 billion, RBI said.

With increase of USD 5 billion in each of the two categories, FIIs and long-term investors can now invest USD 25 billion in G-Secs and USD 50 billion in corporate debt instruments, taking the total to USD 75 billion.

The earlier FII investment limit in G-Secs was USD 20 billion and for corporate debt it was USD 45 billion, including sub-limit of USD 25 billion for infra bonds.

RBI further said: "Residual maturity condition shall not be applicable for the entire sub-limit (in GSecs)of USD 15 billion but such investments will not be allowed in short-term paper like Treasury Bills, as hitherto".

The overall FII limit of domestic debt is distributed through a host of categories across government, corporate and infrastructure debt.

Long-term investors include sovereign wealth funds, multilateral agencies, pension funds and foreign central banks.

Government, which is battling a high current account deficit (CAD) – the gap between inflows and outflows of foreign funds – is trying to attract more foreign funds into the country.

The CAD touched a record high of 5.4 per cent in the July-September quarter of the current fiscal.

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