RBI/2017-18/170
A.P. (DIR Series) Circular No. 26
May
1, 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 this regard a reference is
invited to AP (DIR Series) Circular No. 24
dated April 27, 2018, notifying changes affecting operational
aspects of FPI investments in debt. Paragraph 3 (a) (i) of the circular
announced the withdrawal of the minimum residual maturity requirement for
Central Government securities (G-secs) and State Development Loans (SDLs)
categories, subject to the condition that investment in securities with
residual maturity below one 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. Further, in terms of paragraph 3 (a) (ii), FPIs were
permitted to invest in corporate bonds with minimum residual maturity of
above one year but no cap on investment in securities with residual
maturity below one year was stipulated for FPI investments in corporate
bonds.
3. While the FPIs are only
permitted to invest in corporate bonds with minimum residual maturity of
above one year, in order to bring consistency across debt categories, it is
stipulated that investments by an FPI in corporate bonds with residual
maturity below one year shall not exceed, at any point in time, 20% of the
total investment of that FPI in corporate bonds.
4. In addition, the following
clarifications are issued with respect to the provisions in the AP (DIR Series) Circular No. 24 dated April 27, 2018:
i.
FPIs
are permitted to invest in treasury bills issued by the Central Government.
ii.
The
requirement that investment in securities of any category (G-secs, SDLs or,
in terms of this circular, corporate bonds) with residual maturity below
one year shall not exceed 20% of total investment by an FPI in that
category applies, on a continuous basis. At any point in time, all
securities with residual maturity of less than one year will be reckoned
for the 20% limit, regardless of the maturity of the security at the time
of purchase by the FPI.
iii.
In
case investments in securities with less than one year residual maturity,
as on 02 May 2018 (beginning of day), is more than 20% of total investment
in any category, the FPI shall bring such share below 20% within a period of
six months from the date of this circular; however, the FPI shall ensure
that no further additions are made to the portfolio of securities with
residual maturity of less than one year as on 02 May 2018 (beginning of
day), either through fresh purchases or through roll-down of investments
with current tenor of more than one year, until the share of such portfolio
of securities falls below 20% of the total investment in that category.
iv.
The
term “related FPIs” in paragraph 3 (e) (i) of the circular dated April 27,
2018 refers to all FPIs registered by a non-resident entity.
Illustratively, if a non-resident entity has set up five funds, each
registered as an FPI for investment in debt, total investment by the five
FPIs will be considered for application of concentration and other limits.
v.
As
regards the concentration limit for an FPI for its corporate bond portfolio
to a single corporate (paragraph 3 (e) (ii) of the circular dated April 27,
2018) the following clarifications may be noted:
a.
The
term “related entities” shall have the same meaning as defined in section
2(76) of the Companies Act, 2013.
b.
A
newly registered FPI would mean FPIs registered after April 27, 2018.
vi.
The
implementation date of online monitoring of utilization of G-sec limits has
been set as June 1, 2018. The existing process for monitoring of limits as
well as allocation of limit through auction mechanism will continue in the
meantime.
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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