RBI reduces foreign investment limit in commercial papers

 

The latest RBI move follows a similar move by the central bank on 29 January when it had increased the sub-limit of investment in government securities for long-term investors to $10 billion from $5 billion. Photo: Pradeep Gaur/Mint 

Mumbai: The Reserve Bank of India (RBI) has reduced the amount of money foreign institutional investors (FIIs) can invest in commercial paper from $3.5 billion to $2 billion, the central bank said on its website.

The decision was taken to “encourage long term investors” in the local debt market, RBI said. Commercial paper refers to short-term instruments maturing within a year.

Foreign investors are currently allowed to invest up to $51 billion in local corporate bonds. The sub-limit of investments in commercial paper was part of this limit.

“This sub-limit is being presently utilize only to the extent of around 58%,” RBI said.

“The balance $1.5 billion shall, however, continue to be part of the total corporate debt limit of $51 billion and will be available to eligible foreign investors for investment in corporate debt,” RBI said.

Ananth Narayan, co-head of wholesale banking for South Asia at Standard Chartered Plc, said the RBI was probably seeking to ensure that foreign inflows in the debt market are “more sticky.”

“The fact that they said they want long-term investors means that they are wary of hot money outflows from the debt market like it happened post 22 May,” Narayan said.

Between June and November 2013, FIIs pulled out $13 billion from the Indian debt market after the US Federal Reserve said in May that it is likely to taper its $85-billion-a-month bond purchase programme. The tapering began only last month.

But Narayan said he does not expect the latest RBI move to have any impact on the market because the amount is too small.

The latest RBI move follows a similar move by the central bank on 29 January when it had increased the sub-limit of investment in government securities for long-term investors to $10 billion from $5 billion.

Long-term investors include sovereign wealth funds, multilateral agencies, foreign pension, insurance and endowment funds and foreign central banks, RBI said on its website.

However, the overall foreign investor limit in government securities remained unchanged at $30 billion, RBI said.

 

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