SEBI allows direct purchase of govt bonds by foreign funds

The Securities and Exchange Board of India (SEBI) has relaxed debt investment norms for foreign institutional investors (FIIs) and qualified foreign investors (QFIs), in a bid to boost foreign fund flows to the capital market.

Accordingly, FIIs and QFIs can now invest in government securities up to 90 per cent of their limits without having to go through the auction mechanism, bringing government bonds on par with private debt.

The auction mechanism will be triggered only after investments in government securities by these foreign funds reach 90 per cent of their debt investment limits.

"It has been decided that FIIs / QFIs can now invest in government debt without purchasing debt limits till the overall investment reaches 90 per cent, after which the auction mechanism shall be initiated for allocation of the remaining limits, as currently in place for FII investments in corporate debt," SEBI said in a circular.

The new rules will be in force with immediate effect, it said. SEBI, however, clarified that the new rules will not apply to debt auctioned on 20 August where FIIs have not utilised the auctioned debt limits.

These measures are part of the coordinated efforts to reverse outflows of foreign funds from the capital market and prop up the rupee, which has lost nearly 20 per cent of its value against the US dollar.

"The facility of re-investment as well as the restrictions on re-investment shall no longer apply in respect of limits held / investments made by FIIs in the government debt category, till the limits are available on tap," SEBI said.

SEBI has, meanwhile, through a circular issued on 12 September 2013, detailed KYC (Know Your Customer) requirements of eligible foreign investors investing through portfolio investment scheme (PIS) route.

The requirements are based on the recommendations of ''Committee on Rationalisation of Investment Routes and Monitoring of Foreign Portfolio Investments'' headed by K M Chandrasekhar.

For this, the regulator has dived eligible foreign investors into three categories. Category I includes government or government related entities, category II entities are regulated entities in other jurisdictions while category III are non-regulated entities.

The circular does away with the requirements for obtaining photo identities, address proofs or any other documentary requirements of the beneficial owner, senior management personnel, authorized signatories have been done away with for the Category I and II eligible foreign investors.