RBI to open up foreign investment limit in govt securities in phases

Mumbai: The Reserve Bank of India (RBI) will increase the foreign investment limit in central government securities to 5% of the outstanding stock of such securities by March 2018, the central bank said as part of its bimonthly monetary policy on Tuesday.

This is the first time that the central bank is setting out a formal medium-term framework for foreign investments in government bonds.

"The limits for FPI investment in the central government securities will be increased in phases to 5% of the outstanding stock by March 2018. In aggregate terms, this is expected to open up room for additional investment of Rs.1.2 trillion in the limit for central government securities by March 2018 over and above the existing limit of Rs.1.5 trillion for all government securities (G-secs)," said the RBI.

Limits would be increased for the current financial year in two tranches from 12 October 2015 and 1 January 2016. Each tranche would entail an increase in limits equivalent to Rs.13,000 crore for central government securities (Rs.7,500 crore for long-term investors and Rs.5,500 crore for others).

The RBI will also open up the state government bond market to foreign investors for the first time." ....there will be a separate limit for investment by FPIs in the State Development Loans (SDLs), to be increased in phases to reach 2% of the outstanding stock by March 2018. This would amount to an additional limit of about Rs.50,000 crore by March 2018," said the RBI in its statement.

A Rs.3,500 crore limit for foreign investment in SDL’s would be opened up in October and a similar amount in January 2016.

The existing requirement of investments being made in G-secs with a minimum residual maturity of three years will continue to apply.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.