RBI/2015-16/198
A.P. (DIR Series) Circular No 19
October 6, 2015
To,
All Authorised Persons
Madam/ Sir,
Investment by Foreign Portfolio Investors (FPI) in Government
Securities
Attention of Authorized Dealer Category-I (AD Category-I) banks is invited to
Schedule 5 to the Foreign Exchange Management (Transfer or Issue of Security by
a Person Resident outside India) Regulations, 2000 notified vide
Notification
No. FEMA.20/2000- RB dated May 3, 2000, as amended from time to time. The limits
for investment by foreign portfolio investors (FPI) in Government securities
were last increased to USD 30 billion vide
A.P.(DIR Series) Circular No.111
dated June 12, 2013. Subsequently, the allocation of limits between long term
investors1 and other FPIs was modified and the requirement of investment by FPIs
in securities with minimum residual maturity of three years was put in place
vide
A.P. (DIR Series) Circular No.99 dated January 29, 2014 and
A.P. (DIR
Series) Circular No. 13 dated July 23, 2014.
- Attention of AD Category-I banks is also invited to para 30 of the fourth
bi-monthly Monetary Policy Statement for the year 2015-16 issued on September
29, 2015, in terms of which a Medium Term Framework (MTF) for FPI limits in
Government securities was announced to provide a more predictable regime. The
features of the MTF are as under:
The limits for FPI investment in debt securities will henceforth be announced/
fixed in Rupee terms. The limits for FPI investment in the Central Government securities will be
increased in phases to reach 5 per cent of the outstanding stock by March 2018.
In aggregate terms, this is expected to open up room for additional investment
of ₹ 1,200 billion in the limit for Central Government securities by March 2018
over and above the existing limit of ₹ 1,535 billion for all Government
securities. Additionally, there will be a separate limit for investment by all FPIs in the
State Development Loans (SDLs), to be increased in phases to reach 2 per cent of
the outstanding stock by March 2018. This would amount to an additional limit of
about ₹ 500 billion by March 2018. The effective increase in limits for the following two quarters will be
announced every half year in March and September. The existing requirement of investments being made in G-sec (including SDLs)
with a minimum residual maturity of three years will continue to apply to all
categories of FPIs. Aggregate FPI investments in any Central Government security would be capped at
20% of the outstanding stock of the security. Investments at existing levels in
the securities over this limit may continue but not get replenished through
fresh purchases by FPIs till these fall below 20%.
- Accordingly, for the current financial year, it has been decided to enhance
the limit for investment by FPIs in Government Securities in two tranches from
October 12, 2015 and January 1, 2016 respectively as under:
- For the present, the security-wise limit for FPI investments will be
monitored on a day-end basis and those Central Government securities in which
aggregate investment by FPIs exceeds the prescribed threshold of 20% will be put
in a negative investment list. No fresh investments by FPIs in these securities
will be permitted till they are removed from the negative list. There will be no
security-wise limit for SDLs for now.
(? in billion) |
|
Central Government securities |
State Development Loans |
Aggregate |
For all FPIs |
Additional for Long Term FPIs |
Total |
For all FPIs
(including Long Term FPIs) |
Existing Limits |
1244 |
291 |
1535 |
Nil |
1535 |
Revised limits with effect from October 12, 2015 |
1299 |
366 |
1665 |
35 |
1700 |
Revised limits with effect from January 1, 2016 |
1354 |
441 |
1795 |
70 |
1865 |
- All other existing conditions, including investment of coupons being
permitted outside the limits and investments being restricted to securities with
a minimum residual maturity of three years, will continue to apply.
- Further operational guidelines relating to allocation and monitoring of
limits will be issued by the Securities and Exchange Board of India (SEBI)
- AD Category – I banks may bring the contents of this circular to the notice
of their constituents and customers concerned.
- The directions contained in this circular have been issued under sections
10(4) and 11(1) of the Foreign Exchange Management Act, 1999 (42 of 1999) and
are without prejudice to permissions / approvals, if any, required under any
other law.
Yours faithfully,
(R. Subramanian)
Chief General Manager
|