India’s RBI Eases Rules on Foreign Access to Defaulted Bonds

(Bloomberg) -- India’s central bank relaxed rules for foreign investors to put their money into defaulted corporate bonds, bolstering its efforts to attract external capital to support a fragile financial system.

Overseas investors in defaulted company notes will now be exempt from short-term limit and minimum-residual maturity requirements, the Reserve Bank of India said in a policy announcement on Friday. Detailed guidelines on the new rules will be announced later, it added.

The two requirements had constrained foreign investors from purchasing directly certain defaulted debt, forcing them into routes exempt from the restrictions. One such approach was via so-called Asset Reconstruction Companies, a costlier and more complex process than buying debt outright, and another was under court-approved plans in India’s often protracted insolvency processes.

India has been trying to attract more capital from abroad as one of the world’s worst bad loan piles limits domestic lenders’ ability to provide funding to companies battered by the pandemic. The RBI also kept interest rates on hold Friday and assured investors it had ample liquidity to manage the government’s near-record borrowing.

©2021 Bloomberg L.P.