Executive Summary:
This circular from the Reserve Bank of India announces revisions to the investment limits for Foreign Portfolio Investors (FPI) in government and corporate debt securities, effective immediately from April 2018. These revisions follow a review of existing regulations to facilitate investment and hedging by FPIs. Further operational changes, including coupon reinvestment arrangements, will be detailed in a separate notification in consultation with SEBI.
Key Points / Main Content:
* **Investment Limit Revisions:**
* FPI investment limit in Central Government Securities (G-secs) will increase by 0.5% of outstanding stock each year to 5.5% in 2018-19 and 6% in 2019-20.
* FPI investment limit in State Development Loans (SDLs) remains unchanged at 2% of outstanding stock.
* The overall FPI investment limit in corporate bonds is fixed at 9% of outstanding stock, with all existing sub-categories discontinued in favor of a single limit.
* **SDL Sub-Category Adjustment:**
* No fresh allocation to the Long-term sub-category under SDLs has been made.
* ₹6,500 crore has been transferred from the existing Long-term SDL sub-category limit to the G-secs category.
* **G-Sec Limit Allocation:**
* The allocation ratio of increase in G-sec limit between General and Long-term sub-categories is reset to 50:50 for 2018-19.
* **Coupon Reinvestment:**
* Coupon reinvestment by FPIs in G-secs will now be reckoned within the G-sec limits.
* For 2018-19, ₹4,760 crore, representing coupon reinvestment as of March 31, 2018, will be added to the actual utilization under the General sub-category of G-secs, increasing the investment limit in the General sub-category of G-secs by an equivalent amount.
* The coupon reinvestment arrangement will be extended to other debt categories subsequently.
* **Revised Limits Table:**
* The circular includes a table outlining the revised limits for FPI investment in debt for 2018-19.
Impact Analysis:
* **Authorized Dealer Category-I (AD Category-I) Banks:**
* Impact: Need to be aware of the revised FPI investment limits in government and corporate debt securities and to adhere to the new guidelines.
* Action Required: Implement the changes in their systems and processes to comply with the revised regulations.
* **Foreign Portfolio Investors (FPIs):**
* Impact: The revised limits and regulations on coupon reinvestment directly affect their investment strategies and potential investment amounts in Indian debt markets.
* Action Required: Re-evaluate their investment portfolios and strategies in light of the new limits and guidelines, and ensure compliance with the updated regulations.
Key Entities Referenced
Reserve Bank of India: The central bank of India, responsible for regulating the country's monetary policy and financial system.
Foreign Portfolio Investors: Investors who invest in financial assets of a country without directly managing those assets.
Government Securities: Debt instruments issued by the government to finance its expenditures.
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.
Authorised Dealer Category-I: Banks authorized by the Reserve Bank of India to deal in foreign exchange.
State Development Loans: Debt instruments issued by state governments in India to finance their developmental projects.
Securities and Exchange Board of India: The regulator of the securities market in India.
Mumbai, Maharashtra: The city in India where the Financial Markets Regulation Department of the Reserve Bank of India is located.
भारतीय �रज़व र् बक�
RESERVE BANK OF INDIA
www.rbi.org.in
RBI/2017-18/150
A.P. (DIR Series) Circular No. 22 April 06, 2018
To
All Authorized Persons
Madam / Sir
Investment by Foreign Portfolio Investors (FPI) in Government Securities -
Medium Term Framework – Review
Attention of Authorised Dealer Category-I (AD Category-I) banks is invited to 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.
2. The Statement on Developmental and Regulatory Policies, Fourth Bi-monthly
Monetary Policy Statement, 2017-18 proposed that a detailed review of current
regulations on debt investment by Foreign Portfolio Investors (FPI) shall be undertaken
to facilitate the process of investment and hedging by FPIs. The regulatory changes
would be effective from April 2018. Accordingly, after consultation with the Government
of India, the FPI limits are revised as below:
3. Revision of Investment Limits
(a) The limit for FPI investment in Central Government securities (G-secs) would be
increased by 0.5% each year to 5.5% of outstanding stock of securities in 2018-
19 and 6% of outstanding stock of securities in 2019-20.
(b) The limit for FPI investment in State Development Loans (SDLs) would remain
unchanged at 2% of outstanding stock of securities.
(c) The overall limit for FPI investment in corporate bonds will be fixed at 9% of
outstanding stock of corporate bonds. All the existing sub-categories under the
category of corporate bonds will be discontinued and there would be a single limit
for FPI investment in all types of corporate bonds.
�वत्तीय बाज़ार �व�नयमन �वभाग, मुख्य भवन, पहल� मंिज़ल, शह�द भगत �सहं माग,र् फोटर्, मुंबई – 400001.
फोन: (91-22) 22603000, फैक्स: (91-22) 22702290 ई-मेल: cgmfmrd@rbi.org.in
Financial Markets Regulation Department, Main Building, 1st Floor, Shahid Bhagat Singh Road, Fort, Mumbai – 400001.
Tel: (91-22) 22603000, Fax: (91-22) 22702290 e-mail- cgmfmrd@rbi.org.in(d) No fresh allocation has been made to the ‘Long-term’ sub-category under SDLs.
Out of the existing limit of ` 13,600 crore for this sub-category, an amount of `
6,500 crore has been transferred to the G-secs category.
(e) The allocation of increase in G-sec limit over the two sub-categories – ‘General’
and ‘Long-term’ – remains at the current ratio of 25:75. However, based on an
assessment of investment interest, this ratio has been re-set at 50:50 for the year
2018-19.
(f) Coupon reinvestment by FPIs in G-secs, which was hitherto outside the
investment limit, will now be reckoned within the G-sec limits. FPIs may,
however, continue to reinvest coupons without any constraint, as they do now.
Only at the time of periodic re-setting of limits, coupon investments would be
added to the amount of utilization. Accordingly, for the year 2018-19, the stock of
coupon investment of ` 4,760 crore as on March 31, 2018, would be added to the
actual utilization under the ‘General’ sub-category of G-secs. Since this is a new
policy, as a one-time measure, the investment limit in the ‘General’ sub-category
of G-secs has been increased by an amount equal to the stock of coupon
reinvestment as on March 31, 2018. This increase in limit on account of coupon
investment amount is over and above the limit indicated in paragraph 3(a).
(g) This coupon reinvestment arrangement will be extended to other debt categories
subsequently.
(h) Accordingly, the revised limits for the various categories, after rounding off, would
be as under (Table 1):
Table 1 - Revised Limits for FPI Investment in Debt - 2018-19 (Rupees crore)
G-Sec- G-Sec- SDL - SDL-Long Corporate Total
General Long Term General Term Bonds Debt
Current Limit 191,300 65,100 31,500 13,600 244,323 545,823
Revised Limit
for the HY Apr- 207,300* 78,700 34,800 7,100 266,700 594,600
Sep, 2018
Revised Limit
for the HY Oct
223,300* 92,300 38,100 7,100 289,100 649,900
2018-March,
2019
* Includes ` 4,760 crore one-time addition to limit to provide for inclusion of coupon
investment amount in utilization.
24. These directions would be applicable with immediate effect.
5. A separate notification will be issued announcing coupon reinvestment arrangements
referred to in paragraph 3(g) and other changes affecting operational aspects of FPI
investments in debt, in consultation with SEBI.
6. 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.
Yours faithfully
(T. Rabi Sankar)
Chief General Manager
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