What changed
RBI has permitted SEBI-registered FIIs, QFIs, and long-term investors (SWFs, multilateral agencies, pension/insurance/endowment funds, foreign central banks) to invest in credit enhanced bonds. This is a new sub-limit of USD 5 billion carved out from the existing USD 51 billion corporate debt ceiling. The move follows earlier ECB policy changes allowing non-resident entities to provide credit enhancement for domestic INR bonds.
What it means for you
Banks and corporates can now tap a broader foreign investor base for credit enhanced bonds, potentially lowering borrowing costs. The USD 5 billion sub-limit offers a dedicated window, but total foreign investment in corporate debt remains capped at USD 51 billion. AD Category-I banks must ensure compliance with FEMA regulations and report investments within prescribed limits.
What you must do
- Update internal systems to track FII/QFI/long-term investor investments in credit enhanced bonds against the USD 5 billion sub-limit.
- Advise clients issuing credit enhanced bonds to structure offerings as per ECB policy guidelines (A.P. Dir Series Circular No. 120 dated June 26, 2013).
- Ensure all transactions are on repatriation basis and comply with FEMA Notification No. FEMA.289/2013.
- Monitor overall corporate debt investments to avoid breaching the USD 51 billion aggregate limit.
Who it affects
AD Category-I banks, SEBI-registered FIIs, QFIs, and long-term investors, Indian companies issuing credit enhanced bonds/debentures, ECB-eligible borrowers under automatic route
What is the new investment limit for credit enhanced bonds?
SEBI-registered FIIs, QFIs, and long-term investors can invest up to USD 5 billion in credit enhanced bonds, within the overall USD 51 billion corporate debt limit.
Who can provide credit enhancement for these bonds?
Eligible non-resident entities can provide credit enhancement, as per the ECB policy outlined in A.P. (DIR Series) Circular No. 120 dated June 26, 2013.
Are there any changes to existing FII/QFI investment limits?
No, the overall limits for Government securities (USD 30 billion) and corporate debt (USD 51 billion) remain unchanged. Only a new sub-limit of USD 5 billion for credit enhanced bonds has been introduced.