The Reserve Bank of India on Tuesday clarified that foreign portfolio investors (FPIs) can invest in treasury bills issued by the Central Government. Further, a FPI’s investment in corporate bonds with residual maturity below one year cannot exceed, at any point in time, 20 per cent of its total investment in corporate bonds.
In its circular reviewing ‘Investment by Foreign Portfolio Investors (FPI) in Debt’ on April 27, the central bank said the minimum residual maturity requirement (of three years) for Central Government securities (G-secs) and State Development Loans (SDLs) categories has been withdrawn.
However, the circular did not specifically mention about FPIs investment in treasury bills. Therefore, the central bank clarified the provision on Tuesday.
FPIs’ investment in government bonds is subject to the condition that investment in securities with residual maturity below one year by an FPI under either category cannot exceed, at any point of time, 20 per cent of the total investment of that FPI in that category.
The requirement that investment in securities of any category (G-secs, SDLs or corporate bonds) with residual maturity below one year cannot exceed 20 per cent of total investment by an FPI in that category applies on a continuous basis.
At any point in time, all securities with residual maturity of less than one year, will be reckoned for the 20 per cent limit, regardless of the maturity of the security at the time of purchase by the FPI.
In case investments in securities with less than one year residual maturity, as on May 2, 2018 (beginning of day), is more than 20 per cent of total investment in any category, the RBI said that the FPI has to bring such share below 20 per cent within a period of six months from the date of this circular.
However, the FPI should ensure that no further additions are made to the portfolio of securities with residual maturity of less than one year as on May 2, 2018 (beginning of the day), either through fresh purchases or through roll-down of investments with current tenor of more than one year, until the share of such portfolio of securities falls below 20 per cent of the total investment in that category.