RBI raises investment limit for FPIs in debt market

MUMBAI: The RBI on Thursday raised the investment limit for foreign portfolio investors (FPIs) in government and corporate bonds, a move that is likely to bring more foreign funds into the country.
According to current norms, short-term investments by an FPI should not exceed 20% of the total investment of that FPI in either central government securities (including treasury bills) or state development loans.
The same norms are applicable on investments in corporate bonds. The short-term investment limit has now been increased from 20-30% in both the cases, the RBI said in a circular. Meanwhile, the RBI has also made a relaxation in the voluntary retention route (VRR) for FPI investments in debt. The investment cap through VRR has been doubled to Rs 1.5 lakh crore, the RBI said in another circular.
“FPIs that have been allotted investment limits under VRR may, at their discretion, transfer their investments made under the general investment limit to VRR,” the RBI said. FPIs are also allowed to invest in exchange-traded funds that invest only in debt instruments, it added.
RBI conducts 4th ‘operation twist’
In the fourth special open market operation (OMO) auctions, the RBI on Thursday bought Rs 10,000 crore worth of long-term securities and sold Rs 2,950 crore worth of short-term government bonds. These special OMO auctions are similar to the US Fed’s ‘operation twist’ aimed at faster transmission of policy rates, an analyst said.