The Reserve Bank today relaxed norms for issuance of rupee-denominated overseas bonds, popularly known as masala bonds.
They will be treated as external commercial borrowings from October 3, thereby freeing up more investments by FPIs.
Currently, the limit for investment by foreign portfolio investors (FPIs) in corporate bonds is INR 2,44,323 crore.
This covers issuance of masala bonds by resident entities of INR 44,001 crore, including the ones in pipeline.
After a review, the RBI said that from October 3, masala bonds will no longer form part of the limit for FPI investments in corporate bonds.
They will form part of the ECBs and will be monitored accordingly.
As a result, INR 44,001 crore arising out of shifting of masala bonds will be released for foreign portfolio investor (FPI) investment in corporate bonds over the next two quarters.
Now, FPI investment limit for corporate bonds will increase to INR 2,44,323 crore from January 1.
Further, an amount of INR 9,500 crore in each quarter will be available only for investment in the infrastructure sector by long-term FPIs - sovereign wealth funds, multilateral agencies, endowment, insurance and pension funds and foreign central banks.
With surge in inflows in Indian debt markets, the cumulative utilisation of FPI limit in corporate bonds stood at 99.07 per cent as on September 21, 2017, reflecting limited scope of further FPI investments.
The Reserve Bank of India (RBI) changed the rules pertaining to the calculation of the foreign investment limit in so-called masala bonds, potentially opening up space for Indian companies to sell more such securities.
“Such a shift will allow companies to issue masala bonds as they are currently barred by Sebi (Securities and Exchange Board of India).
This will also lead to better monitoring of issuances by RBI as the external commercial borrowings framework is restrictive in terms of end-use of funds.
In a 20 July circular, market regulator Sebi had said that issuance of masala bonds would be temporarily stopped until the total foreign holding of corporate bonds falls below 92% of the limit.
As of 21st Sept 2017, foreign investors had exhausted over 99% of the available cap.
In June, the Reserve Bank of India had tightened the rules on the issuance of masala bonds.
The central bank mandated a minimum maturity of three years for sales of up to $50 million. Issuances above $50 million must be of five years or above maturity.