Investment by Foreign Portfolio Investors (FPI) in Debt - Review (Updated up to February 26, 2021) - আরবিআই - Reserve Bank of India
Investment by Foreign Portfolio Investors (FPI) in Debt - Review (Updated up to February 26, 2021)
RBI/2017-18/199 June 15, 2018 To All Authorized Persons Madam / Sir Investment by Foreign Portfolio Investors (FPI) in Debt – Review Attention of Authorised Dealer Category-I (AD Category-I) banks is invited to Schedule 1 to the Foreign Exchange Management (Debt Instruments) Regulations, 2019 notified vide Notification No. FEMA. 396/2019-RB dated October 17, 20191, as amended from time to time and the relevant directions issued thereunder. 2. A reference is also invited to A.P. (DIR Series) Circular No. 22 dated April 6, 2018, A.P. (DIR Series) Circular No. 24 dated April 27, 2018, and A.P. (DIR Series) Circular No. 26 dated May 1, 2018, on the captioned subject. 3. Based on the feedback received from custodians, FPIs and other stakeholders, it has been decided to provide some operational flexibility as well as transition path for FPIs and custodians to adapt to these regulations. 4. Accordingly, in supercession of the directions contained in AP (DIR Series) Circular No. 24 dated April 27, 2018 and AP (DIR Series) Circular No. 26 dated May 1, 2018, the following directions are issued: (a) Definitions
(b) Revision of minimum residual maturity requirement (i) In terms of A.P. (DIR Series) Circular No. 13 dated July 23, 2014, FPIs were required to invest in Government bonds with a minimum residual maturity of three years. Henceforth, FPIs are permitted to invest in Central Government securities (G-secs), including in Treasury Bills, and State Development Loans (SDLs) without any minimum residual maturity requirement, subject to the condition that short-term investments by an FPI under either category shall not exceed 30%4 of the total investment of that FPI in that category. (ii) In terms of A.P. (DIR Series) Circular No. 71 dated February 03, 2015, FPIs were required to invest in corporate bonds with a minimum residual maturity of three years. Henceforth, FPIs are permitted to invest in corporate bonds with minimum residual maturity of above one year, subject to the condition that short-term investments in corporate bonds by an FPI shall not exceed 30%5 of the total investment of that FPI in corporate bonds. These stipulations would not apply to investments in ‘Exempted Securities’6 by FPIs. (iii) The requirement that short-term investments shall not exceed 30%7 of total investment by an FPI in any category applies on an end-of-day basis. At the end of any day, all investments with residual maturity of up to one year will be reckoned for the 30%8 limit. (iv) Short-term investments by an FPI may exceed 30%9 of total investments, only if the short-term investments consist entirely of investments made on or before April 27, 2018; that is, short-term investments do not include any investment made after April 27, 2018. (c) Revision of security-wise limit The cap on aggregate FPI investments in any Central Government security, currently at 20% of the outstanding stock of that security, in terms of A.P. (DIR Series) Circular No. 19 dated October 6, 2015, stands revised to 30% of the outstanding stock of that security. (d) Online monitoring of investments in G-sec and SDL Categories
(e) Concentration limit Investment by any FPI (including investments by related FPIs), in each of the three categories of debt, viz., G-secs, SDLs and corporate debt securities, shall be subject to the following concentration limits: (i) Long-term FPIs: 15% of prevailing investment limit for that category. (ii) Other FPIs: 10% of prevailing investment limit for that category. (iii) In case an FPI has investments (INV0) in excess of the concentration limit on the effective date (date on which these concentration limits come into existence), it will be allowed the following relaxations, subject to availability of overall category limits, as a one-time measure:
(f) Single/Group investor-wise limits in corporate bonds FPI investment in corporate bonds shall be subject to the following requirements: (i) Investment by any FPI, including investments by related FPIs, shall not exceed 50% of any issue of a corporate bond. In case an FPI, including related FPIs, has invested in more than 50% of any single issue, it shall not make further investments in that issue until this stipulation is met. (ii) **10 (iii) The requirements of single/group investor-wise limits in corporate bonds (para 4 (f)(i) **11 above) would not be applicable to investments by Multilateral Financial Institutions and investments by FPIs in ‘Exempted Securities’12. (g) Pipeline investments in corporate bonds (i) Investment transactions by FPIs in corporate bonds that were under process but had not materialized as on April 27, 2018 (pipeline investments), shall be exempt from the requirements specified in paragraphs 4(f)(i) and 4(f)(ii) of this circular, subject to the custodian of the FPI reasonably satisfying itself that:
(ii) Custodians may, based on their assessment of adherence to the above conditions, permit, or not permit, as the case may be, pipeline investments by FPIs without reference to the Reserve Bank. (h) Other changes No FPI shall invest in partly paid debt instruments. 5. These directions would be applicable with immediate effect. The directions contained in A.P. (DIR Series) Circular No. 24 dated April 27, 2018 and A.P. (DIR Series) Circular No. 26 dated May 1, 2018 stand withdrawn. 6. The directions contained in this circular have been 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) 1 The words “Schedule 1 to the Foreign Exchange Management (Debt Instruments) Regulations, 2019 notified vide Notification No. FEMA. 396/2019-RB dated October 17, 2019,” replaced the words “Schedule 5 to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2017 notified vide Notification No. FEMA.20(R)/2017-RB dated November 07, 2017”, vide A.P. (DIR Series) Circular No.18 dated January 23, 2020 2 Amended, vide A.P. (DIR Series) Circular No.18 dated January 23, 2020. Prior to the amendment it read as below: 3 Inserted, vide A.P. (DIR Series) Circular No. 12 dated February 26, 2021. 4 Amended, vide A.P. (DIR Series) Circular No.18 dated January 23, 2020. Prior to the amendment it read as 20%. 5 Amended, vide A.P. (DIR Series) Circular No.18 dated January 23, 2020. Prior to the amendment it read as 20%. 6 The words ‘Exempted Securities’ replaced the word ‘SRs’, vide. A.P. (DIR Series) Circular No.18 dated January 23, 2020 7 Amended, vide A.P. (DIR Series) Circular No.18 dated January 23, 2020. Prior to the amendment it read as 20%. 10 Withdrawn, vide A.P. (DIR Series) Circular No. 19 dated February 15, 2019. Prior to the withdrawal it read as below: (ii) No FPI shall have an exposure of more than 20% of its corporate bond portfolio to a single corporate (including exposure to entities related to the corporate).
11 The words ‘and 4(f)(ii)’ deleted, vide A.P. (DIR Series) Circular No. 19 dated February 15, 2019 12 The words ‘Exempted Securities’ replaced the word ‘SRs’, vide. A.P. (DIR Series) Circular No.18 dated January 23, 2020 |