The Reserve Bank of India (RBI) on Monday merged the debt sub limits available for foreign investors into two broad categories - the government debt and corporate debt. The Finance Minister - P Chidambaram had earlier announced the same in a national editors' conference in New Delhi on March 26.
Overseas investors can now invest up to USD 25 billion (or about Rs 1.36 lakh crore) in government bonds including both long and short term papers like treasury bills. Earlier, one could invest on T-bills up to USD 10 billion (or more than Rs 54,000 crore).
"Government securities of USD 25 billion by merging the existing sub-limits under Government securities USD 10 billion for investment by FIIs in Government securities including Treasury Bills and (b) USD 15 billion for investment In Government dated securities by FIIs and long term investors," RBI said in a release.
The above changes will be effective from April 1, 2013. Previously, there was a sub limit for foreign institutional investors at USD 25 billion each for bonds of infrastructure sector and non-infrastructure sector and USD 1 billion for qualified institutional investors in non-infrastructure sector.
However, the FII limit for investing in corporate bonds remained unchanged at USD 51 billion (or around Rs 2.77 lakh crore).
High current account deficit (CAD) is perceived to be the key trigger for such modification for foreign investors. CAD or total savings minus total investments rose to record high at 6.7% during October-December quarter, 2012-13.
"The current account deficit (CAD) can be financed only through foreign inflows, and that is why I am happy to announce a major rationalisation of foreign investment in government securities and corporate bonds. There were a number of sub-divisions, and in order to rationalise it, it is proposed to merge the existing sub-limits and create only two broad categories," FM was quoted saying.
Also read: Fiscal, current account deficits major challenges: FM
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