In a significant move for foreign portfolio investors, regulators have decided to withdraw the minimum three-year residual maturity restriction on investments made by them in corporate debt securities, government securities as well as state development loans.
The Securities and Exchange Board of India on Friday said the restriction is being withdrawn in accordance with a circular issued by the Reserve Bank of India. In this regard, changes have been done to the operational aspects of investments by Foreign Portfolio Investors made in debt.
Besides, SEBI said that overall monitoring of Government Securities and State Development Loans would be done by the Clearing Corporation of India Ltd.
Till now, depositories were monitoring the G-Sec and SDL utilisation limits and reporting to the market regulator.
"It has been decided to withdraw minimum residual maturity restriction of three years for investment by FPIs in G-Secs and SDLs," the SEBI circular said. The regulator also said the auction process being carried out by BSE and NSE shall be discontinued from today.
Thus, any circular previously issued by SEBI from time to time for monitoring of G-Secs and SDLs stands withdrawn and hence, shall not be applicable to FPIs for investments in G-Secs and SDLs from June 1, 2018.”SEBI circular
Besides, the investments in corporate debt securities by FPIs would be subject to minimum residual maturity of above one year, subject to certain conditions.
“The requirement that short-term investments shall not exceed 20 percent of total investment by an FPI in any category applies on an end-of-day basis. At the end of any day, all investments with a residual maturity of up to one year will be reckoned for the 20 percent limit,” SEBI said.
The investments would also be subject to concentration limit, including 15 percent of prevailing investment limit for long-term FPIs and 10 percent for other class of FPIs Investment by any FPI should not exceed 50 percent of any issue of a corporate bond, SEBI said.
"In case an FPI, including investments by investor groups, has invested in more than 50 percent of any single issue, it shall not make further investments in that issue until this stipulation is met," it noted.
Among others, no FPI should have an exposure of over 20 percent of its corporate bond portfolio to a single corporate. Investments made by FPI after the date prescribed by the RBI would be exempted from this requirement till March 31, 2019.
These stipulations would not be applicable for issuers that are owned or controlled by the Government of India or state governments, SEBI said.
"These stipulations would not apply to investments by FPIs which are multilateral financial institutions in which Government of India is a member and investment by FPIs in security receipts issued by asset reconstruction companies," it added.
Sebi also clarified that the primary responsibility of complying with monitoring the corporate debt investment limits is with the FPIs on whose behalf depositories would monitor the investment limits.
As the depositories are maintaining investor group level data, they should monitor the same, the regulator said, adding that the custodians would be responsible for monitoring their own clients.
Depositories would be required to identify the FPIs that are breaching the limits and inform the same to their respective custodians.
"For the monitoring of G-Secs/ SDLs utilisation limits by CCIL, depositories shall share the investor group data with the RBI and CCIL on a monthly basis," SEBI said. The regulator also directed stock exchanges and depositories to put in place the necessary systems for the online monitoring of the investment limits.