Foreign portfolio investors (FPIs) have been pulling out huge sums of money from the Indian debt market this year. FPIs’ utilisation of their investment limits in government and corporate bonds have fallen notably since January.

What’s more data suggests that the Fully Accessible Route (FAR) opened up for investment in specified government securities in April, has also not evinced much interest from FPIs.

Post the announcement made in the Budget 2020-21, that certain specified categories of central government securities would be opened fully for non-resident investors without any restrictions or limits (apart from being available to domestic investors), a separate FAR route was notified by the RBI in March.

Going by data put out by Clearing Corporation of India Ltd (CCIL), it appears that after the existing investments by FPIs in specified securities moved under FAR in April, fresh investments under the route have been few. Since April, FPIs holdings in government securities (indicative value) have been in the ₹18,000-22,400 crore range.

The RBI had notified five existing government securities to fall under the specified category on April 1 and had stated that all new issuances of government securities of 5-year, 10-year and 30-year tenors from the financial year 2020-21 will be eligible for investment under the FAR as ‘specified securities’.


As of August 11, FPIs holdings in G-sec under FAR stood at ₹22,484 crore. Over 90 per cent of these are securities already in their portfolio in March (before FAR came into effect). Fresh investments under FAR have been weak as has been investments made under the existing route under the Medium Term Framework (MTF), where limits apply.

Up until March, FPIs could invest in government securities via two routes — the Medium Term Framework (MTF) and the Voluntary Retention Route (VRR).

Under the MTF, limits are applied (6 per cent of outstanding stock of securities) on investments made by FPIs in G-Secs (state development loans and corporate bonds too). VRR was introduced in March 2019 — a carve-out limit available to FPIs, wherein conventional regulatory norms do not apply. For instance, investments made through VRR are not subject to any minimum residual maturity requirement, concentration limit or single/group investor-wise limits, etc.

The FAR scheme introduced in April, now operates along with these two existing routes.

Weak interest

The RBI has been tweaking investment limits and introducing new routes to attract foreign flows into Indian Debt market over the past year. Its moves have also been aimed at prepping the pitch for Indian bonds’ inclusion into global bond indices.

However FPI interest has been weak over the past year. The Covid-19-led market disruption has only made matters worse. Through 2019, FPIs had invested only about half of their investment limits in government bonds. Concerns over slippage in fiscal deficit and higher government borrowings had led to weak appetite for Indian bonds.

Since March this year, the Indian debt market has seen massive pull outs by FPIs. Sharp rate cuts by the RBI, substantial jump in government borrowings and high inflation, have kept FPIs wary of investing in Indian government bonds. FPIs have pulled out a little over ₹1 lakh crore so far this year from Indian debt market.

FPIs utilisation of investment limits (under the MTF route), has fallen sharply since Jan (at 48 per cent) and currently is at a meagre 29 per cent (for both central and state government bonds). Investments under the VRR route also remain weak.

As on August 11, of the VRR investment limit of ₹90,630 crore, only ₹24,168 crore has been allotted.