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The Reserve Bank of India has allowed non-residents to invest in specified Government of India-dated securities without any quantitative limit with effect from April 1. To enable this, the RBI has decided to introduce a separate channel called ‘Fully Accessible Route’ (FAR).
The central bank also upped the limit for Foreign Portfolio Investment (FPI) investment in corporate bonds to 15 per cent of outstanding stock for FY21 from 9 per cent now.
The move to attract foreign investment in the domestic debt market comes at a time when foreign investors are in an exit mode due to the global Covid-19 pandemic and the rupee under pressure.
They are also in keeping with Finance Minister Nirmala Sitharaman Budget announcement about certain specified categories of government securities being opened fully for non-resident investors and increasing the limit for FPI in corporate bonds.
The central bank said the FAR route will operate along with the two existing routes – the Medium Term Framework (MTF) and the Voluntary Retention Route (VRR).
According to the RBI, existing investments by eligible investors in specified securities should be reckoned under the FAR.
FPIs, Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs) and other entities permitted to invest in Government Securities under the debt regulations can invest under FAR route.
Eligible investors, other than FPIs, NRIs, OCIs, can invest through International Central Securities Depositories.
The central bank specified that all new issuances of government securities of 5-year, 10-year and 30-year tenors from FY21 will be eligible for investment under the FAR as ‘specified securities’. It may add new tenors or change the tenors of new securities to be designated as ‘specified securities’ from time to time.
‘A a feel-good factor’
Marzban Irani, CIO-Fixed Income, LIC Mutual Fund, said this announcement is a feel-good factor and will help attract non-resident investment in the domestic debt market in the medium term.
The RBI has set the revised FPI investment limit in corporate bonds for the first and second half of FY21 at ₹4,29,244 crore and ₹5,41,488 crore, respectively, against the current limit of ₹3.17-lakh crore. It added that revised limits for FPI investment in Central Government securities (G-secs) and State Development Loans (SDLs) for FY21 will be advised separately.
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