RBI Lifts Cap On FPI Investments In Corporate Bonds
Cap on corporate bond investments was introduced to incentivise FPIs. But it turned into a hindrance.
The Reserve Bank of India withdrew the 20 percent limit on investments by foreign portfolio investors in corporate bonds.
As part of the review of FPI investments in corporate debt undertaken in April 2018, it was stipulated that no FPI should have an exposure of more than 20 percent of its corporate bond portfolio to a single corporate, including exposure to entities related to the corporate.
While the provision was aimed at incentivising FPIs to maintain a portfolio of assets, market feedback indicates that they instead have been constrained by this stipulation, the RBI said.
“In order to encourage a wider spectrum of investors to access the Indian corporate debt market, it has been decided to withdraw this provision with immediate effect,” the central bank said.
The RBI said the directions in this regard have been issued the Foreign Exchange Management Act.