What changed
FPI investments in government securities and corporate bonds made from July 8 to October 31, 2022, are exempt from the 30% short-term investment limit until maturity or sale. Additionally, FPIs can now invest in commercial papers and non-convertible debentures with original maturity up to one year during this period, also exempt from the short-term limit.
What it means for you
Banks and AD Category-I banks can expect increased FPI inflows into short-term debt instruments, easing liquidity pressures. The relaxation provides temporary flexibility for FPIs to invest without breaching regulatory caps, potentially lowering borrowing costs for corporates and the government.
What you must do
- Inform your AD Category-I bank customers about the temporary exemption from the 30% short-term investment limit for FPIs.
- Advise FPIs that investments in government securities and corporate bonds made between July 8 and October 31, 2022, are exempt until maturity or sale.
- Facilitate FPI investments in commercial papers and non-convertible debentures with original maturity up to one year during the relaxation period.
- Ensure compliance with other applicable laws and permissions beyond this circular.
Who it affects
Authorised Dealer Category-I banks, Foreign Portfolio Investors (FPIs), Corporate bond issuers, Government securities market participants
What is the 30% short-term investment limit that is being relaxed?
Under existing rules, an FPI's short-term investments in government securities or corporate bonds cannot exceed 30% of its total investment in that category. This circular temporarily exempts investments made between July 8 and October 31, 2022, from that limit.
Does this relaxation apply to all FPI debt investments?
No, it applies only to investments in government securities (including Treasury Bills and State Development Loans) and corporate bonds made during the specified period. It also allows FPIs to invest in commercial papers and non-convertible debentures with original maturity up to one year.
How long does the exemption last?
The exemption applies to investments made between July 8 and October 31, 2022, and remains in effect until the maturity or sale of those investments, whichever is earlier.