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Business Standard
08-05-2025
- Business
- Business Standard
RBI lifts short-term, concentration limits for FPIs in corporate debt
The RBI has removed short-term and concentration limits on FPI investments in corporate debt to ease access and deepen market participation Mumbai The Reserve Bank of India (RBI) on Thursday scrapped 'short-term investment limit' and 'concentration limit' for investments by foreign portfolio investors (FPIs) in corporate debt securities, to provide greater ease of investment to FPIs. 'On a review, and with a view to providing greater ease of investment to FPIs, it has been decided to withdraw the requirement for investments by FPIs in corporate debt securities to comply with the short-term investment limit and the concentration limit,' the central bank said in a notification. These revised norms will come into effect immediately. Market participants described the move as a positive step toward deepening the corporate bond market, though its impact will also depend on the attractiveness of yields. 'This is a very positive step to deepen the corporate bond market, but it depends upon how FPIs will react to that, because yields have to be attractive for them. If we look at March and April data, FPIs withdrew money from debt because of the narrowing of the yield spread,' said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP. Foreign investors net sold around ₹14,379 crore worth of domestic debt in April as the yield spread between US 10-year benchmark bond and domestic 10-year benchmark bond narrowed below 200 basis points (bps). They pulled out ₹13,314 crore via debt-general limit route, NSDL data showed. This month, FPIs have net sold around ₹3,177 crore as of Wednesday (May 7) via general limit route. However, they have net bought ₹781 crore during the same period under the fully accessible route (FAR). Foreign investors had net sold the highest amount of ₹11,139 crore worth of Indian government securities designated under the FAR in April since the official inclusion of domestic securities in the J P Morgan indices.
Mint
08-05-2025
- Business
- Mint
RBI gives foreigners more flexibility to invest in corporate bonds
Mumbai: The Reserve Bank of India (RBI) on Thursday allowed foreign investors greater freedom to buy Indian corporate bonds, giving them a chance to purchase more short-term paper. The central bank removed short-term investment and concentration limits from its rules governing foreign investments in corporate bonds. This, it said, will provide greater ease of investment to foreign portfolio investors (FPIs). Before the removal of restrictions, FPI investments in corporate debt with residual maturity up to one year could not exceed 30% of the total investment in corporate bonds. Similarly, the concentration limit meant that corporate bond investments by foreign investors were limited to 15% of the limit for these bonds for long-term FPIs and 10% for other FPIs. Experts said it was a positive move for the Indian corporate bond market and, especially, for lower-rated instruments and short-term debt paper. 'The idea is to attract more foreign investments into corporate bonds,' said Venkatkrishnan Srinivasan, founder of financial advisory firm Rockfort Fincap LLP. However, for foreign investors to be interested in corporate securities, the local yields have to be attractive, he said. According to Srinivasan, the current spread between the Indian 10-year Gsec and the 10-year US Treasury is about 200 basis points (bps) compared with 250-300 bps a year ago. This, he said, has historically been around 400-500 bps and has shrunk over the period due to India's inclusion in JP Morgan and Bloomberg index funds, besides other positive factors. While the US is rated AAA, India is at BBB-, the lowest investment grade by global rating agencies and something the government has been unhappy about. A shrinking spread does not give adequate incentive to a foreign investor to invest in a country where the credit rating is lower than the US. Foreign investors have a lot of room for investments in Indian corporate bonds. As on 7 May, FPIs have utilised 14.5% of their aggregate corporate bond investment limit of ₹ 7.6 trillion, showed data from NSDL. This was at 15.71% on the same day last year. Others said that investments into the country were quite tightly controlled earlier by the central bank, preferring long-term flows over short-term. 'The spread between the US 10-year and our local government bond is quite low. After India got included in the global indices, there are fair chances that most of the flows from FPIs into bonds would come into G-secs so that they can rebalance portfolios under the passive route, as to maintain India's weight in the indices,' said Ajay Manglunia, a fixed income specialist. Manglunia expects more investments into higher-yielding non-banking financial companies (NBFCs), real estate entities and promoter financing deals after this route is opened up. India could see additional flows of ₹ 1-2 trillion over the next one or two years, he said. 'So far, money was coming via the VRR (voluntary retention route) where investments have a three-year lock-in. While those that have already invested in VRR have to remain invested, incremental investments may attract the general route in corporate bonds, now that the tenor and concentration restrictions are removed,' he said. Introduced in 2019, the voluntary retention route is meant to encourage FPIs planning long-term investments. Through this route, FPIs were given more operational flexibility through the choice of instruments and exemption from some regulatory norms. Of the ₹ 2.5 trillion limit through VRR, almost ₹ 2 trillion has been allotted to investors.
