RBI hikes cap on FII funds in government, corporate bonds

The Reserve Bank of India today hiked the investment limits for foreign institutional investors (FIIs) in government securities and corporate bonds by $5 billion each, taking the total cap in domestic debt to $75 billion, with a view to reducing the current account deficit.

Further liberalising the rules, the three-year lock-in period for FIIs purchasing government securities (G-Secs) for the first time has been done away with, RBI said in a statement from Mumbai.

The sub-limit of $10 billion for investment by FIIs and long-term investors in G-Secs stands enhanced by $5 billion, it said. Further, the limit in corporate debt, other than infrastructure sector, stands enhanced from $20 billion to $25 billion, RBI said.

With increase of $5 billion in each of the two categories, FIIs and long-term investors can now invest $25 billion in G-Secs and $50 billion in corporate debt instruments, taking the total to $75 billion.

The earlier FII investment limit in G-Secs was $20 billion and for corporate debt it was $45 billion, including sub-limit of $billion for infrastructure bonds.

The RBI further said, "Residual maturity condition shall not be applicable for the entire sub-limit (in GSecs) of $15 billion but such investments will not be allowed in short-term paper like Treasury Bills, as hitherto".