RBI withdraws limit on investments by FPIs

Context

  • The Reserve Bank has eased investment norms for foreign portfolio traders (FPIs) in debt, particularly into individual massive corporates, a move that may assist entice extra abroad flows and thereby assist arrest the recent fall within the rupee on one hand and also carry the recent fall in demand for corporate bonds.

Key Facts

  • FPIs are allowed to invest in numerous debt market devices such as government bonds, treasury payments, state improvement loans and corporate bonds, however with sure limits and restrictions.
  • The RBI elevated the FPIs cap on funding in authorities safety to 30 per cent of the excellent inventory of that safety, from 20 per cent earlier.
  • FPIs were allowed to invest in government bonds with a minimal residual maturity of three years.
  • “Henceforth, FPIs are permitted to invest in Government securities (G-secs), together with treasury payments, and SDLs with none minimum residual maturity requirement, topic to the situation that short-term investments by an FPI underneath both class shall not exceed 20 per cent of the whole funding of that FPI in that class,” RBI mentioned in a notification final night.

Foreign portfolio investment

  • FPI consists of securities and other financial assets passively held by foreign investors. FPI does not provide the investor with direct ownership of financial assets. In India, FPIs are allowed to invest in various debt market instruments such as government bonds, treasury bills, state development loans (SDLs) and corporate bonds, but with certain restrictions and limits. FPI is part of countries capital account and is listed on its balance of payments (BOP).

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