The Reserve Bank today hiked FII investment limits in government securities and corporate bonds by USD 5 billion each, taking the total cap in domestic debt to USD 75 billion, with a view to bridging the current account deficit.
Further liberalising the norms, the three-year lock-in period for foreign institutional investors (FIIs) purchasing government securities (G-Secs) for the first time has been
done away with, RBI said.
The sub-limit of USD 10 billion for investment by FIIs and long-term investors in G-Secs stands enhanced by USD 5 billion, it said.
The limit in corporate debt, other than infrastructure sector, stands enhanced from USD 20 billion to USD 25 billion, RBI said.
With increase of USD 5 billion in each of the two categories, FIIs and long-term investors can now invest USD 25 billion in G-Secs and USD 50 billion in corporate debt instruments, taking the total to USD 75 billion.
The earlier FII investment limit in G-Secs was USD 20 billion and for corporate debt it was USD 45 billion, including sub-limit of USD 25 billion for infra bonds.
RBI further said: "Residual maturity condition shall not be applicable for the entire sub-limit (in GSecs)of USD 15 billion but such investments will not be allowed in short-term paper like Treasury Bills, as hitherto".
The overall FII limit of domestic debt is distributed through a host of categories across government, corporate and infrastructure debt.
Long-term investors include sovereign wealth funds, multilateral agencies, pension funds and foreign central banks.
Government, which is battling a high current account deficit (CAD) – the gap between inflows and outflows of foreign funds – is trying to attract more foreign funds into the country.
The CAD touched a record high of 5.4 per cent in the July-September quarter of the current fiscal.
In order to check outflow of foreign currency, the government recently hiked import duty on gold and also took steps to encourage mutual funds park their gold in deposit schemes offered by banks.
As a measure of further relaxation, the RBI added that it has dispensed with the one year lock-in period on holding infrastructure bonds.