Market regulator Sebi has tweaked the investment limits for foreign portfolio investors (FPI) in government securities by increasing the threshold for general investors from $20 billion to $25 billion.
At the same time, the sub-limit for longer time FPIs such as sovereign funds has been reduced by $5 billion as there was less demand in this category. The overall cap remain unchanged at $30 billion. The previous cap of $10 billion had been utilised by only about 20% in this category. The $20 billion limit for general FPIs has been always fully exhausted.
The decision comes after Reserve Bank of India (RBI) relaxed sub-limit for foreign institutional investors in government bonds by $5 billion.
“It has been decided to enhance the investment limit in government securities available to all FPIs by $5 billion by correspondingly reducing the amount available to long term FPIs from $10 billion to $5 billion within the overall limit of $30 billion," Sebi said in a circular.
Long-term investors include sovereign wealth funds (SWFs), multilateral agencies, pension, insurance funds and foreign central banks registered with Sebi.
Earlier this year, the limit for long-term investors for investment in government securities was raised from $5 billion to $10 billion within the total limit of $30 billion available to them. Sebi, however, said the increment investment limit of $5 billion shall be required to be put in government bonds with a minimum residual maturity of three years.
It further said, all future investment against the limit vacated when the current investment by an FPI runs off either through sale or redemption would also be required to be made in government bonds with a minimum residual maturity of three years.
“There will be no lock-in period and FPIs shall be free to sell the securities (including those that are presently held with less than three years of residual maturity) to the domestic investors," Sebi said