What changed
Previously, foreign investors could invest in T-bills and short-term government securities within a USD 30 billion overall limit, with a USD 5.5 billion sub-limit for T-bills. Now, RBI has prohibited fresh foreign investment in T-bills and government securities with residual maturity below one year. Only dated securities with residual maturity of one year or more are eligible, and existing short-term investments must taper off upon maturity or sale.
What it means for you
Banks and ADs must ensure that all new foreign portfolio investments in government securities are directed only to dated securities with residual maturity of at least one year. The move aims to encourage longer-term capital inflows and reduce reliance on short-term foreign money. Existing short-term holdings will gradually exit, potentially reducing volatility in the T-bill market.
What you must do
- Update internal systems to block fresh foreign investment in T-bills and government securities with residual maturity below one year.
- Inform FIIs, QFIs, and other eligible foreign investors about the revised eligibility criteria and the tapering-off mechanism for existing short-term holdings.
- Monitor existing short-term investments to ensure they taper off on maturity or sale as directed.
- Coordinate with SEBI for any operational guidelines on implementing the new investment limits.
Who it affects
Category-I Authorised Dealer Banks, Foreign Portfolio Investors (FPIs, FIIs, QFIs), Long-term investors (SWFs, multilateral agencies, pension/insurance/endowment funds, foreign central banks), SEBI
Can foreign investors still invest in Treasury Bills?
No. Fresh investment in T-bills is prohibited. Only existing T-bill investments are allowed to taper off on maturity or sale.
What is the new residual maturity requirement for government securities?
All foreign investments in government dated securities must have a residual maturity of one year or more. Securities with less than one year residual maturity are not eligible for fresh investment.
Does this circular affect the overall USD 30 billion limit?
The overall limit remains USD 30 billion, but it now applies only to dated securities with residual maturity of one year or more. The earlier sub-limits for T-bills and short-term securities are effectively removed.