RBI/2017-18/12
A.P.(DIR Series) Circular No. 48
July
3, 2017
To,
All Authorized Persons
Madam / Sir
Investment
by Foreign Portfolio Investors (FPI) in Government Securities
Medium Term Framework – 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.
Review of the Medium term
Framework
2. The current Medium Term
Framework (MTF) for FPI investment in Central Government Securities
(G-secs) and State Government Securities (SDLs) was introduced in October
2015 with the following major features:
a.
Limits
to be specified as a percentage of outstanding Stock – 5% for G-secs; 2%
for SDLs, to be achieved by 31 March 2018, through half yearly reviews and
quarterly increases.
b.
Minimum
tenor of investments at 3 years.
c.
20%
cap on FPI investment in any particular security.
d.
Preference
for long-term investors – Allocation of 60% for ‘long term’ category and
40% for ‘General’ category.
e.
Transfer
of unutilized limits in ‘Long Term’ category to ‘General’ category.
3. Currently ‘long term’
category of FPI investors accounts for about 20% of the total investment by
FPIs in Central Government securities. In order to recalibrate the
Framework to meet the objective of a preference for long-term investors and
also with a view to manage the macro-prudential implications of evolving
capital flows, the MTF has been reviewed. Based on the review, the
following modifications are made to the Framework.
a.
The
overall cap of 5% for Central Government securities (G-Secs) and 2% for
State Development Loans (SDLs) remain unchanged.
b.
Future
increases in the limit for FPI investment in Central Government securities
will be allocated in the following ratio - 75% for ‘Long-Term’ category of
FPIs and 25% for ‘General’ category.
c.
The
practice of transferring unutilized limits of ‘Long-Term’ category to
‘General’ category of FPIs is done away with.
d.
To
harmonize the approach to FPI investments in SDLs with that for Central
Government securities, future increases in SDLs would be in the ratio of
75% for ‘Long Term’ category and 25% for ‘General’ category of FPIs.
4. RBI may, in future, continue
to calibrate some features of the MTF depending on the evolving
macro-economic conditions.
Revision of Limits for the
Jul-Sep 2017 Quarter
5. The limits for investment by
FPIs in Central Government Securities and State Development Loans (SDLs)
for the quarter July-September 2017 are increased by INR 110 billion and
INR 61 billion, respectively, and allocated as under:-
Limits
for FPI investment in Government Securities
|
(INR
Billion)
|
|
Central
Government securities
|
State
Development Loans
|
Aggregate
|
General
|
Long
Term
|
Total
|
General
|
Long
Term
|
Total
|
Existing Limits
|
1,849
|
461
|
2,310
|
270
|
--
|
270
|
2,580
|
Revised limits
|
1,877
|
543
|
2,420
|
285
|
46
|
331
|
2,751
|
6. The revised limits will be
effective from July 4, 2017.
7. All other existing
conditions, including the security-wise limits, investment of coupons being
permitted outside the limits and investments being restricted to securities
with a minimum residual maturity of three years, will continue to apply.
8. The operational guidelines
relating to allocation and monitoring of limits will be issued by the
Securities and Exchange Board of India (SEBI).
9. AD Category – I banks may
bring the contents of this circular to the notice of their constituents and
customers concerned.
10. 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/approval, if any, required under any other law.
Yours faithfully
(T. Rabi Sankar)
Chief General Manager
|