What changed
FIIs can now invest in non-convertible debentures issued by NBFCs classified as Infrastructure Finance Companies (IFCs) within the USD 25 billion overall limit. The lock-in period for FII investments has been reduced from three years to one year for the first USD 5 billion of the USD 25 billion limit. The residual maturity condition now refers to the original maturity of the instrument at the time of first purchase by an FII, not the remaining maturity. These changes also apply to QFI investments in mutual fund debt schemes within their USD 3 billion sub-limit.
What it means for you
Banks and lenders can now access a broader pool of foreign capital for infrastructure financing, as NBFC-IFCs are eligible for FII investment. The reduced lock-in period makes these instruments more attractive to FIIs, potentially lowering borrowing costs for infrastructure projects. AD Category-I banks must update their compliance and reporting systems to reflect the new lock-in and maturity definitions.
What you must do
- Update internal systems to reflect the reduced lock-in period of one year for the first USD 5 billion of FII investments in eligible debentures.
- Ensure that residual maturity is calculated based on original maturity at first purchase, not remaining maturity.
- Inform clients, especially NBFC-IFCs and infrastructure companies, about the expanded eligibility for FII investment.
- Monitor FII and QFI investment limits to ensure compliance with the USD 25 billion overall cap and USD 3 billion QFI sub-limit.
Who it affects
AD Category-I banks, NBFCs classified as Infrastructure Finance Companies (IFCs), Indian infrastructure companies issuing non-convertible debentures, SEBI-registered FIIs, Qualified Foreign Investors (QFIs)
What is the new lock-in period for FII investments in infrastructure debentures?
The lock-in period has been reduced from three years to one year for the first USD 5 billion of the USD 25 billion overall limit. This lock-in is computed from the time of first purchase by the FII.
Does the residual maturity condition change under this circular?
Yes, the residual maturity of five years and above now refers to the original maturity of the instrument at the time of first purchase by an FII, not the remaining maturity.
Are QFIs also affected by these changes?
Yes, the changes allowing investment in NBFC-IFC debentures and the revised maturity definition also apply to QFI investments in mutual fund debt schemes within their USD 3 billion limit.