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RBI/2020-21/105
A.P. (DIR Series) Circular No. 12
February 26, 2021
To
All Authorised persons
Madam / Sir,
Investment by
Foreign Portfolio Investors (FPI) in Defaulted Bonds - Relaxations
Attention of Authorised Dealer Category-I (AD Category-I) banks is invited to
Foreign Exchange Management (Debt Instruments) Regulations, 2019 notified vide
Notification No. FEMA. 396/2019-RB dated October 17, 2019, as amended from time
to time, and the relevant directions issued thereunder. A reference is also
invited to A.P. (DIR Series) Circular No. 31 dated November 26, 2015 wherein
FPIs were permitted to acquire NCDs/bonds, which are under default, either fully
or partly, in the repayment of principal on maturity or principal instalment in
the case of amortising bond, and to A.P. (DIR Series) Circular No. 31 dated June
15, 2018 (hereinafter, Directions), as amended from time to time.
2.
Attention of AD Category-I banks is also invited to para 12 of Statement on
Developmental and Regulatory Policies dated February 05, 2021, wherein it was
announced that FPI investment in defaulted corporate bonds will be exempted from
the short-term limit and the minimum residual maturity requirement under the
MTF.
3. Currently, FPI investments in corporate bonds are subject to a
minimum residual maturity requirement, short-term investment limit (paragraph 4
(b)(ii)) and the investor limit (paragraph 4(f)(i)) in terms of the Directions.
However, FPI investments in security receipts and debt instruments issued by
Asset Reconstruction Companies and debt instruments issued by an entity under
the Corporate Insolvency Resolution Process as per the resolution plan approved
by the National Company Law Tribunal under the Insolvency and Bankruptcy Code,
2016 are exempt from these requirements. It has now been decided to exempt
investments by FPI in NCDs/bonds which are under default, either fully or
partly, in the repayment of principal on maturity or principal instalment in the
case of amortising bond from the aforesaid requirements.
4. The updated
Directions are attached.
5. These directions are 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
(Dimple Bhandia)
Chief General Manager
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