Cap on FPI investment in corporate bond lifted

The Reserve Bank of India ( RBI) has on Thursday done away with the provision that Foreign Portfolio Investors ( FPI) can't have an exposure of more than 20 per cent of their corporate bond portfolio to a single corporate.

As part of the review of the FPI investment in corporate debt undertaken in April 2018, it was stipulated that no FPI should have an exposure of more than 20 per cent of its corporate bond portfolio to a single corporate, including exposure to entities related to the corporate.

In order to encourage a wider spectrum of investors to access the Indian corporate debt market, the central bank said it is now proposed to withdraw the exposure limit.

A circular to this effect will be issued by midFebruary, it said.

"FPIs were given exemption from this requirement on their new investments till end- March 2019 to adjust their portfolios. While the provision was aimed at incentivising FPIs to maintain a portfolio of assets, further market feedback indicates that FPIs have been constrained by this stipulation," RBI said.

RBI will also come out with draft guidelines by the end of next month to rationalise interest rate derivative regulations.

This will help in achieving consistency and ease of access with the eventual objective of fostering a thriving environment for management of interest rate risk in the Indian economy, it said.

In April 2018, the government had restricted an FPI’s investment in a single corporate bond to 50 per cent of the bond issue.

They were allowed to invest in debt papers with less than three- year maturities, provided the total investment in debt papers maturing within a year did not exceed 20 per cent of the portfolio.

An RBI press release said, "While the provision was aimed at incentivising FPIs to maintain a portfolio of assets, further market feedback indicates that FPIs have been constrained by this stipulation. In order to encourage a wider spectrum of investors to access the Indian corporate debt market, it is now proposed to withdraw this provision.