Foreign Investment in Debt Securities: Rationalization of Limits

With
effect from April 1, 2013, the Government has rationalized the investment limits
in debt securities for foreign institutional investors (FIIs) and other
eligible investors such as qualified foreign investors, sovereign wealth funds,
pension funds and the like. This has been implemented through circulars issued
by SEBI (here)
and RBI (here).
Previously,
FII investment in debt (both Government and corporate) was based on various
sub-limits which led to complexity due to the process and also the onerous
conditions attached. The new regime combines various limits among different
categories of investors. The salient features of the new limits are set out in
RBI’s circular as follows:
(i)
Government Debt limit: Government securities of USD 25 billion by merging the
existing sub-limits under Government securities [(a)USD 10 billion for investment
by FIIs in Government securities including Treasury Bills and (b) USD 15
billion for investment In Government dated securities by FIIs and long term investors];
and
(ii)
Corporate Debt Limit: Corporate debt of USD 51 billion by merging the existing
sub-limits of Corporate debt [(a) USD 1 billion for Qualified Foreign Investors
(QFIs), (b) USD 25 billon for investment by FIIs and long term investors in
non-infrastructure sector and (c) USD 25 billion for investment by
FIIs/QFIs/long term investors in infrastructure sector].
While
this streamlining is essential in terms of policy, it is unclear whether this
measure itself will act as boost to the debt markets in India, which continue
to suffer from lack of depth compared to its equity markets.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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