Monday, June 25, 2012

RBI hikes FII limit in G-Secs to $20 b


To attract dollars and stabilise the depreciating rupee, the RBI has opened up access to offshore debt to Indian companies in manufacturing and infrastructure sectors.
It has also upped the FII investment limit in Government Securities market.
These measures, announced by the Reserve Bank of India in consultation with the Government, come just a day before the Finance Minister, Mr Pranab Mukherjee, bows out as a Cabinet Minister to contest the Presidential elections.
Markets disappointed
The markets — equity and forex markets — were, however, unimpressed by the measures announced to stabilise the rupee.
The BSE Sensex was down about 100 points and the rupee was trading at 56.80 to the dollar, off the intraday high of 56.30, at around 15.20 hours.
ECB limit
According to the RBI, Indian companies in manufacturing and infrastructure sectors, who have foreign exchange earnings, can avail themselves of external commercial borrowings (ECBs) for repayment of outstanding rupee loans.
These loans should have been taken for capital expenditure and/or fresh rupee capital expenditure under the approval route.
The RBI said that the overall ceiling for such ECBs would be $10 billion.
FII limit in G-Secs
The existing limit for investment by the Securities and Exchange Board of India (SEBI) registered foreign institutional investors (FIIs) in Government securities (G-Secs) has been enhanced by a further amount of $5 billion.
This would take the overall limit for FII investment in G-Secs from $15 billion to $20 billion.
Broadbase investors in G-Secs market
In order to broadbase the non-resident investor base for G-Secs, long-term investors like sovereign wealth funds, multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks will also be allowed to invest in G-Secs for the entire limit of $20 billion. These entities will have to register themselves with SEBI.
The sub-limit of $10 billion (against existing $5 billion with a residual maturity of five years and additional limit of $5 billion) would have the residual maturity of three years.
IDFs and QFIs
The terms and conditions for the scheme for FII investment in infrastructure debt and the scheme for non-resident investment in Infrastructure Development Funds (IDFs) have been further rationalised in terms of lock-in period and residual maturity, the RBI said.
However, it did not elaborate on the steps taken on this front.
Further, Qualified Foreign Investors (QFIs) can now invest in those mutual fund schemes that hold at least 25 per cent of their assets (either in debt or in equity or both) in infrastructure sector under the current $3 billion sub-limit for investment in mutual funds related to infrastructure.