Sebi modifies rules for FPI investment in government debt

The Securities and Exchange Board of India (Sebi) has partially modified rules for foreign investment in government of India securities and enhanced the investment limit available to all foreign portfoli investments (FPI) by $5 billion by correspondingly reducing the amount available to long term FPIs from $10 billion to $5 billion within the overall limit of $30 billion.

The current debt investment limits available for FPI investments in government securities (G-Secs) include a $20 billion limit for all FPIs and another $10 billion limit for long term FPIs.

While the $20-billion limit has been fully utilised, the $10-billion limit has been utilised only up to 22.86 per cent, Sebi noted.

FPIs should invest the incremental investment limit of $5 billion (Rs24,886 crore) in government bonds with a minimum residual maturity of three years.

Further, all future investment against the limit vacated when the current investment by an FPI runs off either through sale or redemption shall also be required to be made in government bonds with a minimum residual maturity of three years.

Sebi, however, clarified that there will be no lock-in period and FPIs would be free to sell the securities (including those that are presently held with less than three years of residual maturity) to the domestic investors.

The market regulator has also clarified that FPIs which had acquired debt limits in the auction held on 22 July 2014 may ensure the debt limits purchased in the said auction are grandfathered. Sebi said the new guidelines will come into effect immediately.