RBI eases foreign investment rules for corporate debt

23 Sep 2017


The Reserve Bank of India (RBI) has eased rules governing foreign investment in corporate bonds by excluding rupee-denominated securities from its overall debt limit. The move effectively frees up Rs44,000 crore ($6.79 billion) of debt available to offshore investors.

Currently, the limit for investment  by foreign portfolio investors (FPIs) in corporate bonds is Rs244,323 crore. This includes issuance of rupee denominated bonds overseas (Masala Bonds) by resident entities of Rs44,001 crore (including pipeline).

The Masala Bonds are currently reckoned both under combined corporate debt limit (CCDL) for FPI and external commercial borrowings (ECBs).

RBI said the move is aimed at further harmonising norms for Masala Bonds issuance with the ECB guidelines.

Accordingly, RBI has decided that with effect from 3 October 2017, Masala Bonds will no longer form a part of the limit for FPI investments in corporate bonds. They will form a part of the ECBs and will be monitored accordingly.

RBI has asked eligible Indian entities proposing to issue Masala Bonds to approach the Foreign Exchange Department, Reserve Bank of India, Central Office, Mumbai.

The amount of Rs44,001 crore arising from shifting of Masala Bonds will be released for FPI investment in corporate bonds over the next two quarters - Rs27,000 crore during October-December and Rs17,000 crore in January-March, RBI said.

Earlier, these Masala Bonds used to be classified under the foreign portfolio investment limit for corporate bonds that stands at Rs2,44,000 crore. This total limit has been fully taken up following massive foreign inflows.

So far this year, India has attracted $23.7 billion in debt investment and $6.08 billion in equity purchases, helping the rupee rise 4.8 per cent.

India's total external debt stood at $471.9 billion as of the end of March, of which external commercial borrowings stood at $124.5 billion, according to the RBI data.

The RBI also said that some Rs9,500 crore of debt will be available every quarter to long-term foreign investors such as sovereign wealth funds, foreign central banks, insurance funds for investment in infrastructure sector bonds.

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