Executive Summary:
This circular from the Reserve Bank of India expands investment options for Foreign Portfolio Investors (FPIs) in corporate debt securities. It includes unlisted corporate debt and securitized debt instruments, subject to certain conditions and limits. The changes were announced in the Union Budget 2016-17 and take effect immediately. The revised norms will be reviewed after one year.
Key Points / Main Content:
* **Expansion of Investment Basket:**
* FPIs can now invest in unlisted corporate debt securities (non-convertible debentures/bonds) issued by public or private companies.
* These securities must have a minimum residual maturity of three years.
* Investment is restricted from use in real estate business, capital markets, and purchase of land.
* The definition of "Real Estate Business" is as per Notification No. FEMA.362/2016-RB.
* Custodian banks of FPIs are responsible for ensuring compliance with end-use restrictions.
* FPIs can also invest in securitized debt instruments.
* This includes certificates/instruments issued by SPVs for securitization of assets where banks, FIs, or NBFCs are originators.
* Also certificates/instruments issued and listed per SEBI Regulations on Public Offer and Listing of Securitised Debt Instruments, 2008.
* **Investment Limits:**
* Investment in unlisted corporate debt and securitized debt instruments is capped at ₹35,000 crore.
* This limit is within the overall extant investment limits prescribed for corporate bonds which is ₹2,44,323 crore.
* The 3-year residual maturity requirement does not apply to securitized debt instruments.
* **Other Conditions:**
* All other existing conditions for FPI investment in the debt market remain unchanged.
* Amendments to Foreign Exchange Management Regulations have been notified on October 24, 2016.
Impact Analysis:
* **Authorised Dealer (AD) Category I Banks:**
* Impact: AD Category I banks need to understand the revised guidelines and inform their customers/constituents.
* Action Required: Bring the contents of this circular to the notice of their customers/constituents.
* **Foreign Portfolio Investors (FPIs):**
* Impact: FPIs have expanded investment opportunities in corporate debt but must adhere to new restrictions and limits.
* Action Required: Comply with the new investment guidelines, including end-use restrictions, maturity requirements, and investment limits.
* **Custodian Banks of FPIs:**
* Impact: Custodian banks have a monitoring role to ensure compliance with end-use restrictions.
* Action Required: Ensure FPI investments in unlisted corporate debt securities comply with end-use restrictions related to real estate, capital markets, and land purchase.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the Indian financial system.
Foreign Portfolio Investors: Investors who invest in financial assets of a country.
Foreign Exchange Management Act, 1999: An Act of the Parliament of India to consolidate and amend the law relating to foreign exchange with the objective of facilitating external trade and payments and for promoting the orderly development and maintenance of foreign exchange market in India.
Foreign Exchange Management Transfer or Issue of Security by a Person Resident outside India Regulations, 2000: Regulations pertaining to the transfer or issue of security by a person resident outside India.
Union Budget 2016-17: The annual financial statement presented by the Finance Minister of India to the Parliament.
Securities and Exchange Board of India: The regulator of the securities market in India.
Mumbai, Maharashtra: A city in India where the Financial Markets Regulation Department is located
Manoj Kumar: Deputy General Manager at Reserve Bank of India
भारतीय �रज़व र् बक�
RESERVE BANK OF INDIA
www.rbi.org.in
RBI/2016-17/138
A.P. (DIR Series) Circular No. 19 November 17, 2016
To,
All Category – I Authorised Dealer banks
Madam / Sir,
Investment by Foreign Portfolio Investors (FPI) in corporate debt securities
Attention of Authorised Dealers Category – I (AD Category - I) banks is invited to
paragraph 1 of Schedule 5 to the Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident outside India) Regulations, 2000 notified vide Notification
No.FEMA 20/2000-RB dated May 3, 2000 as amended from time to time, in terms of
which, foreign portfolio investors (FPI) are permitted to invest only in listed or to-be-listed
debt securities. Investment in unlisted debt securities is permitted only in case of
companies in the infrastructure sector.
2. As announced in the Union Budget 2016-17, it has now been decided to expand the
investment basket of eligible instruments for investment by FPIs under the corporate
bond route to include the following:
(i) Unlisted corporate debt securities in the form of non-convertible
debentures/bonds issued by public or private companies subject to minimum
residual maturity of three years and end use-restriction on investment in real
estate business, capital market and purchase of land. The expression ‘Real
Estate Business’ shall have the same meaning as assigned to it in Foreign
Exchange Management (Transfer or issue of Security by a Person Resident
outside India) Regulations, 2000 Notification No.FEMA.362/2016-RB dated
February 15, 2016. The custodian banks of FPIs shall ensure compliance with
this condition.
�वत्तीय बाज़ार �व�नयमन �वभाग, मख्ु य भवन, दसू र� मिंज़ल, शह�द भगत �सहं माग,र् फोटर्, मबुं ई – 400001.
फोन: (91-22) 22603000, फैक्स: (91-22) 22702290 ई-मेल: cgmfmrd@rbi.org.in
Financial Markets Regulation Department, Main Building, 2nd Floor, Shahid Bhagat Singh Road, Fort, Mumbai – 400001.
Tel: (91-22) 22603000, Fax: (91-22) 22702290 e-mail- cgmfmrd@rbi.org.in: 2 :
(ii) Securitised debt instruments as under:
(a) any certificate or instrument issued by a special purpose vehicle (SPV) set
up for securitisation of asset/s where banks, FIs or NBFCs are originators;
and/or
(b) any certificate or instrument issued and listed in terms of the SEBI
Regulations on Public Offer and Listing of Securitised Debt Instruments,
2008.
3. Investment by FPIs in the unlisted corporate debt securities and securitised debt
instruments shall not exceed ` 35,000 crore within the extant investment limits
prescribed for corporate bond from time to time which currently is ` 2,44,323 crore.
Further, investment by FPIs in securitised debt instruments shall not be subject to the
minimum 3-year residual maturity requirement.
4. All other existing conditions for investment by FPIs in the debt market remain
unchanged.
5. AD Category - I banks may bring the contents of the circular to the notice of their
customers/constituents concerned.
6. Necessary amendments to Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident outside India) Regulations, 2000 (Notification No. FEMA
20/2000-RB dated May 3, 2000) have been notified by the Government on October 24,
2016 and are annexed to this circular.
7. The directions contained in this circular have been issued under Sections 10(4) and
11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and are without
prejudice to permissions / approvals, if any, required under any other law.
8. The revised norms will be reviewed after one year.
Yours faithfully,
(Manoj Kumar)
Deputy General Manager