Norms for foreign portfolio investors in G-Secs tweaked

To encourage longer term capital flows, investments by foreign portfolio investors (FPIs) in Government securities will henceforth be permitted only in dated securities of residual maturity of one year and above, according to the Reserve Bank of India.

Existing investment in Treasury Bills will be allowed to taper off on maturity/sale.

The overall limit for FPI investment in G-Secs will, however, remain unchanged at $30 billion. So, the investment limits vacated at the shorter end will be available at longer maturities.

In order to enhance hedging facilities for foreign investors in debt instruments, the RBI plans to allow them to hedge the coupon receipts falling due during the next 12 months.

The central bank said all resident individuals, firms and companies with actual foreign exchange exposures would be allowed to book foreign exchange derivative contracts up to $250,000 on declaration, subject to certain conditions.

The RBI said rebooking of cancelled contracts in case of contracted exposures has been fully restored.

The modalities for allowing foreign institutional investors (FIIs) to hedge their currency risk by using exchange-traded currency futures in the domestic exchanges are being finalised in consultation with the Securities and Exchange Board of India (SEBI), the RBI said.

To attract more investments, the Reserve Bank plans to simplify the know-your-customer (KYC) procedures for opening bank accounts by FPIs.

The RBI said it will continue to work to ease entry while reducing risk to foreign investors from the volatility of flows.

As regards foreign direct investment, the RBI said it has decided to withdraw all existing guidelines relating to valuation in case of acquisition/sale of shares and, accordingly, such transactions will henceforth be based on acceptable market practices.

Operating guidelines will be notified separately.

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