RBI expands scope for FII investment in infra bonds, NCDs

4 November 2011: The Reserve Bank of India (RBI) on 3 November 2011 expanded the scope of FII investment in infrastructure bonds and non-convertible debentures to include such instruments issued by Infrastructure Finance Companies (IFCs) in order to boost investment in the infrastructure sector.

On April 29, RBI hiked the limit on FII investment in listed non-convertible debentures and bonds issued by core segment companies by $20 billion to make it $25 billion. In the notification, the lock-in period of three years for FII investment has been slashed to one year up to an amount of $5 billion within the overall limit of $25 billion. This lock-in period will be computed from the time of first purchase by FIIs.

The residual maturity of five years and above stipulated will now onwards refer to the original maturity of the instrument at the time of first purchase by an FII. In an earlier circular, the RBI had raised limit for FII investment in non-convertible debentures, bonds issued by infrastructure companies from $ 5billion to $ 25 billion. This was subject to the conditions that such instruments shall have a residual maturity of five years and above, the investments would have a lock-in-period of three years and ‘infrastructure’ would be as defined under the extant External Commercial Borrowings (ECB) policy.

The new norms will allow FIIs to invest in instruments with shorter term maturities and also buy from the secondary market. The norms will enhance FII participation in infrastructure funding. As per rules, FIIs can invest up to $50 billion in Indian debt. Of this, they can invest up to $10 billion in government securities — $5 billion comes with time restriction of five years (before which such a debt instrument, normally in the form of a bond, cannot mature) and $5 billion comes without time restriction.

Source: Livemint