Increase in FII debt limit for Government and Corporate Debt category
Summary
This circular implements enhancements to Foreign Institutional Investor (FII) debt investment limits as per an RBI directive, increasing caps for Government and Corporate Debt categories. It details specific regulatory changes regarding maturity restrictions, lock-in periods, and exclusions for instruments like Treasury Bills and Commercial Papers. Furthermore, it outlines the auction process for allocating these revised limits and specifies utilization timelines for investors.
Text
The Reserve Bank of India vide circular RBI/2012-13/391, dated January 24, 2013, had enhanced the limit for investment by FIIs in the Government Debt Long Term category by US$ 5 billion to US$ 15 billion and the Corporate non-infrastructure debt category by US$ 5 billion.
In the Government Debt Long Term category, the provision regarding 3 years residual maturity at the time of first purchase shall no longer be applicable. However, within this category, FIIs shall not be allowed to invest in short term paper like treasury bills.
In terms of the aforesaid circular, the limit of US$ 5 billion in the Corporate Non-Infrastructure Debt category shall not be available for investment in Certificate of Deposits (CD) and Commercial Papers (CP). Investments in Certificate of Deposits are not permitted within the limit of US$ 20 billion.
The US $ 1 billion limit for QFIs shall continue to be over and above the revised limit of US$ 25 billion available for FII investment in Corporate non-infrastructure debt category.
For the US$ 12 billion sub-category for investment in Corporate Long Term Infra bonds the following changes have been made : i. The restriction of 1 year lock-in period has been removed ii. The 5 year initial maturity restriction has been removed At the time of first purchase by FIIs, the residual maturity shall be 15 months.
For the sub-category of US$ 10 billion reserved for FII investments in Infrastructure Debt Funds (IDFs), the restriction of 1 year lock-in has been removed. The requirement of residual maturity of 15 months at the time of first purchase remains unchanged.
Vide circular CIR/IMD/FII&C/18/2012 dated July 20, 2012, SEBI had permitted QFIs to invest in those debt mutual fund schemes that hold at least 25 percent of their assets (either in debt or equity or both) in the infrastructure sector under the US$ 3 billion investment limit for debt mutual fund schemes. These schemes were required to invest in infrastructure debt having a minimum residual maturity of 5 years. This restriction of 5 years residual maturity has been removed while the restriction of 3 years initial maturity has been introduced.
All the above changes in lock-in , initial maturity and residual maturity requirements shall apply for investments by FIIs and Sub-Accounts in debt securities to be made after the date of this circular.
The table summarizing the revised positions for FII/ Sub-Account investments in Government securities and Corporate Debt securities is as follows: [Table Data: Govt Debt Old 10bn, Govt Debt Long Term 15bn, Corp Debt Old 21bn, Corp Debt Long Term 5bn, Corp Debt Long Term Infra 25bn (sub-cat 12bn), QFI Mutual Fund 3bn, IDF 10bn].
The incremental limit in Government Debt Long Term category i.e US $ 5 billion (equivalent to approximately Rs.26,925 cr – converted at the RBI reference rate of US $ 1 = Rs. 53.8515 as on January 24, 2013) shall be auctioned along with the unutilized debt limits in that category as on January 31, 2013 (Rs.7034 cr), during the next auction scheduled to be held on February 20, 2013. Therefore, the total unutilized limit of Rs.33,959 cr in the Government Debt Long Term category will be auctioned on February 20, 2013.
The incremental Corporate non-infrastructure limit of US $ 5 billion (equivalent to approximately Rs.26,925 cr – converted at the RBI reference rate of US $ 1 = Rs. 53.8515 as on January 24, 2013) shall be auctioned as a separate category during the next auction scheduled to be held on February 20, 2013.
The aforesaid auction shall be conducted through electronic bidding process, in terms of SEBI circular CIR/IMD/FIIC/12/2012 dated April 27, 2012.
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Source: SecMarx — Increase in FII debt limit for Government and Corporate Debt category. Verbatim text is public record; SecMarx structuring (linkage to applying orders) is cited to us.