By a circular dated October 6, 2015, the Reserve Bank of India (“RBI”) has increased the maximum limit for investments by Foreign Portfolio Investors (“FPI”) in Government securities (“RBI Circular”). Consequently, the Securities and Exchange Board of India (“SEBI”) also issued a circular on the same day, along the same lines, to increase the limit for investments by FPIs in Government securities (“SEBI Circular”). This is pursuant to the fourth bi-monthly Monetary Policy Statement for the year 2015-16, issued by the RBI on September 29, 2015, wherein the FPI limits in Government securities was announced in terms of the Medium Term Framework (“MTF”). The RBI Circular and the SEBI Circular were issued pursuant to the changes brought about by the MTF, the details of which are summarised below:

  1. Going forward, the limits for FPI investments in debt securities will be announced/fixed in Rupee terms.
  2. The limit for all FPI investments in Central Government Securities (“CGS”) will be increased in phases to reach 5% (five percent) of the outstanding stock by March, 2018.
  3. A separate limit for investments by all FPIs in State Development Loans (“SLDs”) will be increased in phases to reach 2% (two percent) of the outstanding stock by March, 2018.
  4. The effective increase in limits for the following two quarters will be announced every half year in March and September. Accordingly, for the current financial year, the limit for investment by FPIs in Government securities will be enhanced in two tranches from October 12, 2015 and January 1, 2016.
  5. The aggregate FPI investment in any CGS will be capped at 20% (twenty percent) of the amount outstanding under each CGS. Investments made in securities which are over this limit will be permitted to continue, however fresh purchases by FPIs in these securities will not be permitted, till the corresponding security-wise investments fall below 20% (twenty percent).
  6. The security wise limit for FPI investments will be monitored on a day-end basis and CGS in which the aggregate investments are above the prescribed limit of 20% (twenty percent), will be put on a negative list, consequent to which no fresh FPI investments will be permitted in such securities until they are removed from the negative list. SDLs will have no such security-wise limit.
  7. All other existing conditions, including investment of coupons being permitted outside the limits and investments being restricted to securities with a minimum residual maturity of 3 (three) years, will continue to be applicable to all categories of FPIs.
  8. The daily reporting of the negative list, coupon investment data, daily debt utilisation data as well as the aggregate security-wise holdings by FPIs will be made available on the National Securities Depository Limited and Central Depository Services Limited websites.

The increase in the limit for FPI seeks to attract further foreign investments, to enhance the national exchequer. As described by the RBI Circular, in aggregate terms, the increase in the FPI investment limits in CGS will open up room for an additional investment of ` 1200,000,000,000 (Indian Rupees Twelve hundred billion) by March, 2018, which will be over and above the current limit of ` 1535,000,000,000 (Indian Rupees One thousand five hundred thirty five billion).