Investment Norms Relaxed for FPIs
The RBI has relaxed operational aspects of FPI investments in debt vide circular dated June 15, 2018. The key changes include the following:
- RBI has reduced the minimum residual maturity period (“MRM Period”) for the investment of FPIs in debt. Earlier, the required MRM Period was 3 (Three) years but RBI has relaxed this requirement and has allowed the investments by FPIs in debt with MRM Period below 1 (One) year, provided it does not exceed 20% (Twenty Percent) of the total investment of an FPI in that category, on a continuous basis.
The RBI has also clarified that all the existing securities with residual maturity of less than 1 (One) year will be brought in compliance of the 20% (Twenty Percent) limit, regardless of the maturity of the security at the time of purchase. The BI has provided a six months window to FPIs to comply with this condition.
- RBI has increased the aggregate cap on FPI investments in any Central Government security from 20% (Twenty Percent) to 30% (Thirty Percent) of the outstanding stock of that security.
- Further, RBI has restricted investments by FPIs (including related FPIs) in corporate bonds to a maximum of 50% (Fifty Percent) of any issue of a corporate bond. Also, a restriction has been introduced to limit FPI exposure to 20% (Twenty Percent) of its corporate bond portfolio to a single corporate entity (including related entities). If the already subsisting investment exceeds the above limits, no further investments are permitted until these stipulations are met. Furthermore, a newly registered FPI is required to adhere to this stipulation starting no later than 6 (Six) months from the commencement of its investments.
- RBI has come up with the concentration limits for investments by FPIs (including related FPIs) in debt. For long term FPIs, the prescribed limit is 15% (Fifteen Percent) of the prevailing investment limit for that category whereas for other FPIs, it is 10% (Ten Percent). The RBI has also prescribed one-time measure for investments currently exceeding the newly prescribed concentration limit.
- Lastly, RBI has indicated that FPIs can invest in Treasury bills. However, investment is not permitted in partly paid instruments.