Tuesday, October 6, 2015

Investment by Foreign Portfolio Investors (FPI) in Government Securities

The limits for investment by foreign portfolio investors (FPI) in Government securities were last increased to USD 30 billion. Further, FPIs can invest in securities with minimum residual maturity of three years only.

Medium Term Framework for FPI limits in Government securities was announced on September 29, 2015. The features of the MTF are as under:

i.            The limits for FPI investment in debt securities will be fixed in Rupee terms.
ii.            The limits for FPI investment in the Central Government securities will be increased in phases to reach 5% of the outstanding stock by March 2018.
iii.            There will be a separate limit for investment by all FPIs in the State Development Loans (SDLs), to be increased in phases to reach 2% of the outstanding stock by March 2018.
iv.            The effective increase in limits for the following two quarters will be announced every half year in March and September.
v.            The requirement of investments being made in G-sec (including SDLs) with a minimum residual maturity of 3 years will apply to all categories of FPIs.
vi.            Aggregate FPI investments in any Central Government security would be capped at 20% of the outstanding stock.

Accordingly, for the current financial year, it has been decided to enhance the limit for investment by FPIs in Government Securities in two tranches from October 12, 2015 and January 1, 2016 respectively as under:
( in billion)

Central Government securities
State Development Loans
For all FPIs
Additional for Long Term FPIs
For all FPIs
(including Long Term FPIs)

Existing Limits
Revised limits with effect from October 12, 2015
Revised limits with effect from January 1, 2016

Those Central Government securities in which aggregate investment exceeds the prescribed threshold of 20% will be put in a negative investment list. No fresh investments will be permitted till they are removed from the negative list. There will be no security-wise limit for SDLs for now.

All other existing conditions will continue to apply. Operational guidelines relating to the allocation and monitoring of limits will be issued by SEBI.

Based on RBI Circular dt 6/10/15. Please visit www.rbi.org.in for any further clarification if required…..  Poppy