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FPI limit in corporate bonds raised to 15% for FY21

At present, FPIs can invest Rs 3.17 lakh crore in Indian corporate bonds.

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Last Updated: Mar 30, 2020, 08.25 PM IST
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With the enhanced limit, they can hold Rs 4.29 lakh crore of corporate bonds for the half year ended September 2020.
Mumbai: The Reserve Bank of India (RBI) on Monday hiked the limit for foreign portfolio investors’ (FPI) investment in corporate bonds to 15 per cent of outstanding stock for FY2020-21.

At present, FPIs can invest Rs 3.17 lakh crore in Indian corporate bonds. With the enhanced limit, they can hold Rs 4.29 lakh crore of corporate bonds for the half year ended September 2020, and Rs 5.41 lakh crore for the half year ending March 2021.

The central bank added that it will notify the revised limits for FPI investment in Central Government securities (G-secs) and State Development Loans (SDLs) for FY 2020-21, separately.

The move will not have an immediate impact, as the current levels are far from the limit.

"This is just an enabling clause. Whenever the risk appetite for emerging markets comes back, we will see more money pouring into India corporate bonds. For now, we will not see much impact on corporate bonds," said Dwijendra Srivastava, CIO- fixed income, Sundaram Mutual Fund.

This move comes after the central bank on Friday provided the much-needed shot in the arm to the corporate bond market in terms of liquidity support.

The central bank will conduct auctions of targeted term repos of up to three-year tenor of appropriate sizes for a total amount of up to Rs 1 lakh crore at a floating rate linked to the policy repo rate.

Liquidity availed under the scheme by banks has to be deployed in investment-grade corporate bonds, commercial papers and non-convertible debentures over and above the outstanding level of their investments in these bonds as on March 27, RBI said.

Separately, the central bank also enabled a Fully Accessible Route (FAR) for investment by non-residents in government securities.

RBI said it will notify the government securities that will be eligible for investment under the FAR, and these securities will continue to be eligible for investment by residents.

All new issuances of government securities of 5-year, 10-year and 30-year tenors from the financial year 2020-21, will be eligible for investment under the FAR.

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