What changed
The overall FII limit for government securities was increased by USD 5 billion to USD 20 billion. The existing USD 5 billion sub-limit with a 5-year residual maturity condition and the USD 5 billion enhancement together form a new USD 10 billion sub-limit with a reduced residual maturity condition of three years at first purchase. For infrastructure debt, the lock-in period was uniformly reduced to one year, and residual maturity at first purchase was set at 15 months. Additionally, Sovereign Wealth Funds, multilateral agencies, endowment funds, insurance funds, pension funds, and foreign central banks can now invest in government securities within the enhanced limit. QFIs are now allowed to invest in mutual fund schemes that hold at least 25% of assets in the infrastructure sector under the USD 3 billion sub-limit, subject to review.
What it means for you
Banks and lenders can expect increased foreign capital inflows into government securities and infrastructure debt, potentially lowering yields and improving liquidity. The relaxed conditions for infrastructure debt may boost lending to infrastructure projects, while the broader investor base for government securities could enhance market depth. Banks acting as authorized dealers must update their compliance frameworks to reflect the new limits and conditions.
What you must do
- Update internal systems to reflect the new FII investment limit of USD 20 billion for government securities and the revised sub-limit conditions.
- Ensure compliance with the reduced lock-in period of one year and residual maturity of 15 months for infrastructure debt investments.
- Note that QFIs can invest in mutual funds meeting the 25% infrastructure asset threshold under the USD 3 billion sub-limit, subject to review.
- Communicate the changes to relevant departments handling foreign investments and regulatory reporting.
Who it affects
AD Category-I banks, FIIs and QFIs, Infrastructure Finance Companies (IFCs), Mutual funds with infrastructure exposure, Sovereign Wealth Funds and other long-term investors
What is the new overall limit for FII investment in government securities?
The overall limit has been increased from USD 15 billion to USD 20 billion, effective immediately.
What are the new conditions for infrastructure debt investments?
The lock-in period is uniformly reduced to one year, and the residual maturity at first purchase must be at least 15 months.
Can QFIs now invest in any mutual fund scheme?
QFIs can invest in mutual fund schemes that hold at least 25% of their assets in the infrastructure sector under the USD 3 billion sub-limit, subject to review.