RBI/2017-18/168
A.P. (DIR Series) Circular No. 24
April
27, 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 5 to the Foreign
Exchange Management (Transfer or Issue of Security by a Person Resident
outside India) Regulations, 2000 notified vide Notification No. FEMA.20/2000-RB dated May 3, 2000, as amended
from time to time and the relevant directions issued thereunder.
2. In terms of AP (DIR Series) Circular No. 22 dated April 6, 2018,
the revised framework for Foreign Portfolio Investors (FPI) in debt was
announced. It was further stated that a separate notification would be
issued announcing other changes affecting operational aspects of FPI
investments in debt, in consultation with SEBI.
3. Accordingly, the changes to
operational aspects of FPI investment are set forth below.
(a) 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. The minimum residual maturity requirement for
Central Government securities (G-secs) and State Development Loans (SDLs)
categories stands withdrawn, subject to the condition that investment in
securities with residual maturity below 1 year by an FPI under either
category shall not exceed, at any point of time, 20% 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.
(b) 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.
(c) Online monitoring of G-sec
utilisation limits
Currently, FPIs are permitted to
invest in G-secs till the limit utilization reaches 90%, after which the
auction mechanism is triggered for allocation of the remaining limit. With
Clearing Corporation of India Ltd. (CCIL) commencing online monitoring of
utilisation of G-sec limits, it has been decided to discontinue the auction
mechanism with effect from June 1, 2018. Utilisation of FPI limits shall be
monitored online thereafter.
(d) 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:
a.
In
case an FPI has investments (INV0) in excess of the concentration limit on the effective
date, it will be allowed to undertake additional investments such that its
portfolio size at any point in time (INVt) does not exceed INV0 plus 2.5% of investment limit for the
category on the effective date. Once INVt falls below the prevailing concentration limit for
the category, the FPI shall be free to make investments up to the
applicable concentration limit.
b.
In
case an FPI has investments (INV0) within the concentration limit, but in excess of 7.5%
(12.5% in case of FPIs in the ‘Long-term’ sub-category) of the investment
limit for the category on the effective date, that FPI shall be allowed to
undertake additional investments such that its portfolio size at any point
in time (INVt) does not exceed INV0 plus 2.5% of the investment limit for the category
on the effective date. Once INVt falls below the prevailing concentration limit for
the category, the FPI shall be free to make investments up to the
applicable concentration limit.
c.
All
other FPIs will be allowed to invest up to the applicable concentration
limit.
(e) Single/Group investor-wise
limit 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) 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). In case an FPI has exposure in excess of 20% to any
corporate (including exposure to entities related to the corporate), it
shall not make further investments in that corporate until this stipulation
is met. A newly registered FPI shall be required to adhere to this
stipulation starting no later than 6 months from the commencement of its
investments.
4. Other changes: No FPI shall invest in partly paid instruments.
5. These directions would be
applicable with immediate effect.
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
(T.
Rabi Sankar)
Chief General Manager
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