Masala bonds out of corporate bond limit for FPIs

The Reserve Bank of India (RBI) on Friday increased the corporate bond investment limit for foreign investors by taking out rupee-denominated bonds, or Masala bonds, from the ambit of total debt investment limit.

Currently, the limit for investment by foreign portfolio investors (FPIs) in corporate bonds is Rs 2,44,323 crore. This includes issuance of rupee-denominated bonds overseas by resident entities of Rs 44,001 crore (including pipeline). Masala Bonds are presently reckoned both under combined corporate debt limit (CCDL) for FPI and external commercial borrowings (ECBs).

“With effect from October 3, 2017, Masala bonds will no longer form part of the limit for FPI investments in corporate bonds. They will form part of the ECB and will be monitored accordingly,”

The amount of Rs 44,001 crore arising from the shifting of Masala bonds will be released for FPI investment in corporate bonds over the next 2 quarters.

An amount of Rs 9,500 crore in each quarter will be available only for investment in infrastructure sector by long-term FPIs (i.e. sovereign wealth funds, multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks), the central bank said. Long-term FPIs will continue to be eligible to invest in sectors other than infrastructure.

With a surge in inflows in Indian debt markets in the current year, the cumulative utilisation of FPI limit in corporate bonds stood at 99.07 percent as on September 21, 2017, reflecting limited scope of further FPI investments.
Masala Bonds are presently reckoned both under combined corporate debt limit (CCDL) for FPI and external commercial borrowings (ECBs)

– With effect from October 3, 2017, Masala bonds will no longer form part of the limit for FPI investments in corporate bonds. They will form part of the ECB and will be monitored accordingly

– The amount of Rs 44,001 crore arising from a shifting of Masala bonds will be released for Foreign Portfolio Investment in corporate bonds over the next two, quarters.

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