INDIA: Amendments to India FII debt limits

Wednesday March 27 2013

The Finance Minister, Shri Chidambaram, has announced certain measures for ratioinalisation of india foreign investments in Government Securities and Corporate Bonds.

In order to encourage greater India foreign investment in INR denominated debt instrument and to help develop rupee debt markets, the Government will simplify the framework of India FII debt limits, the allocation mechanisms of these debt limits and also lay down a plan for enhancement of these India FII debt limits.

The Finance Minister said that the existing debt limits will be merged into following two broad categories:

i) Government securities of US$ 25 billion (by merging Government Securities old and Government Securities long term) and,
ii) Corporate bonds of US $ 51 billion dollars (by merging US $ one billion for QFIs, US 25 billion dollars for FIIs and US $ 25 billion for FIIs in long term infra bonds).

In addition, the current SEBI auction mechanism allocating debt limits for corporate bonds will be replaced by the ‘on tap system’ currently in place for infrastructure bonds. In order to allow large investors to plan their investments, the Government will review the foreign investor limit in corporate bonds when 80% of the current limit is taken up. The government will also enhance the limit on government bonds as and when needed, based on utlilisation levels, demand from foreign investors, macro-economic requirements and a prudent off shore:on shore balance. The annual enhancement of the Government bond limit will remain within 5% of the gross annual borrowing of the Central Government excluding buy backs.

These changes will be made operational by April 1, 2013.

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