India raises overseas investment limit in government, corporate bonds

Mumbai - In a bid to prop up the battered currency, the Reserve Bank of India (RBI) Monday hiked the limit of overseas investments in government and corporate bonds and announced a slew of other measures to improve market sentiments. The limit of overseas investment in government bonds has been raised by $5 billion to $20 billion and that of external commercial borrowings to $10 billion.

The measures are aimed at attracting more foreign investments that would help revive the battered currency, which hit a record low of 57.33 to the dollar last week.

The Reserve Bank of India said in a statement that it has taken measures in consultation with the government of India.

Finance Minister Pranab Mukherjee had said earlier in the day that Economic Affairs Secretary R. Gopalan was in talks with the RBI for coordinated steps to bolster economic growth and revive the currency.

It has been decided to allow Indian companies in the manufacturing and infrastructure sector with foreign exchange earnings to avail of external commercial borrowing (ECB) for repayment of outstanding rupee loans towards capital expenditure and/or fresh rupee capital expenditure under the approval route, the RBI said.

“The overall ceiling for such ECBs would be $10 billion,” the central bank said.

The existing limit for investment by Securities and Exchange Board of India (SEBI) registered foreign institutional investors (FIIs) in government securities (G-Secs) has been enhanced by a further amount of $5 billion.

This would take the overall limit for FII investment in G-Secs from $15 billion to $20 billion.

“In order to broad base the non-resident investor base for G-Secs, it has also been decided to allow long term investors like Sovereign Wealth Funds (SWFs), multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks to be registered with SEBI, to also invest in G-Secs for the entire limit of $20 billion,” the RBI said.

The sub-limit of $10 billion (existing $5 billion with residual maturity of 5 years and additional limit of $5 billion) would have the residual maturity of three years.

The RBI said Qualified Foreign Investors (QFIs) can now invest in those mutual fund schemes that hold at least 25 percent of their assets, either in debt or in equity or both, in infrastructure sector under the current $3 billion sub-limit for investment in mutual funds related to infrastructure.