Mumbai, Jan. 24: The Reserve Bank of India today increased the FII limit in government securities and corporate bonds by $5 billion each to boost funds inflow and reduce the current account deficit.
In a notification issued today, the apex bank has also scrapped the condition that first-time foreign investors must invest in government paper of a three-year residual maturity.
Foreign entities can invest in two types of government paper: government securities and government dated securities. The limit for government dated securities is up to $15 billion from $10 billion earlier. Coupled with the existing limit of $10 billion for government securities, the total limit in government paper is now $25 billion against $20 billion earlier.
Investment in corporate debt is also in two categories: corporate bonds and infrastructure bonds. While the limit on infrastructure bonds stays at $25 billion, that on corporate debt is up to $25 billion from $20 billion.
Therefore, the total limit on corporate bonds is up to $50 billion from $45 billion — and taken with the $25 billion on government paper, the total ceiling for foreign entities is now $75 billion.
However, the relaxation relating to residual maturity is only for dated government securities.
The RBI said: “Residual maturity condition shall not be applicable for the entire sub-limit (in G-secs) of $15 billion but such investments will not be allowed in short-term papers such as treasury bills, as hitherto”.
The government is battling a high current account deficit, which rose to a record 5.4 per cent of the gross domestic product (GDP) for July-September 2012. Current account deficit occurs when a country’s imports of goods, services and transfers are higher than exports.
Huge crude oil and gold imports have contributed to the widening deficit and the government has been making efforts to bridge the gap.
Recently, it hiked the import duty on gold and gave oil marketing companies the freedom to raise diesel prices in a periodic manner. It has also taken steps to encourage mutual funds to park their gold in deposit schemes offered by banks.
Market regulator Sebi today issued elaborate guidelines to set up a separate debt segment on bourses where entities such as banks and pension funds can execute trades.