RBI Allows Foreign Investors To Buy More Corporate Debt

The Reserve Bank of India has tweaked norms for foreign portfolio investors, allowing them to buy more company debt and thereby opening up room for more investments in the Indian corporate bond market.

Rupee denominated bonds, popularly known as masala bonds, will no longer be a part of the limit on foreign investments in corporate bonds, the central bank said in a notification on Friday. Instead, masala bonds will be categorised under external commercial borrowings starting October 3. The change in categorisation will allow the Rs 44,001 crore limit reserved for masala bonds to be shifted towards corporate bonds over the next two quarters, the notification said.

Currently, the investment limit for FPIs in corporate debt securities is Rs 2.44 lakh crore. Overseas investors, lured by the high yields on Asian bonds and prospects of Modi government reforms, bought more than 99 percent of all the Indian sovereign and corporate bonds that they’re allowed to buy. These funds, therefore, had limited room to buy more for the rest of the year.

Already, foreign portfolio investments so far this month are less than a third of what they were in August. The pullback has contributed to the weakening of the rupee that fell to a five-month low against the dollar on Friday.

As a result of the tweaked norms, the overall limit on foreign investments in corporate bonds will increase to Rs 2.27 lakh crore. Of this, Rs 9,500 crore will be available each quarter solely for investment in infrastructure by long-term FPIs such as sovereign wealth funds, endowment funds, pension funds and foreign central banks, the RBI said.

All other existing conditions for investment by FPIs in the debt market are unchaged, it added.