Masala Bonds Removed from FPI, Now Covered in ECB
(Masala Bonds are Rupee Denominated Bonds issued Overseas)
[Ref: A.P. (DIR Series) Circular No. 05
(RBI/2017-18/64) dated September 22, 2017]
Subject: Investment by Foreign
Portfolio Investors in
Corporate Debt Securities – 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.
2. Currently, the limit for investment by Foreign Portfolio
Investors (FPIs) in corporate
bonds is ` 244,323 crore. This includes issuance of Rupee denominated
bonds overseas (Masala Bonds) by resident entities of ` 44,001 crore (including pipeline). The Masala Bonds are presently
reckoned both under Combined Corporate
Debt Limit (CCDL) for FPI and External Commercial Borrowings (ECBs). On a review, and
to further harmonise
norms for Masala Bonds
issuance with the ECB guidelines, the following
changes are made:
a. With effect from October 3, 2017, Masala bonds will no
longer form a part of
the limit for FPI investments in corporate
bonds. They will form a
part of the ECBs and will
be monitored accordingly.
Eligible Indian
entities proposing to issue Masala Bonds may approach Foreign
Exchange
Department, Reserve Bank of India, Central Office, Mumbai
as
required in terms of A. P. (DIR Series) Circular No.47 dated June 7, 2017.
b. The amount of ` 44,001 crore arising from shifting
of Masala bonds will be
released for FPI investment in
corporate bonds over the
next two quarters
as specified in Table 1.
|
Table 1 – Limit for FPI Investments in
Corporate Bonds |
Amount (` crore) |
|
1. Current FPI limits
for corporate bonds (including
masala bonds) |
2,44,323 |
|
(a) of
which Masala bonds (including pipeline) |
44,001 |
|
2. FPI limit
after shifting Masala bonds to ECB (1-(a)) |
2,00,322 |
|
3. Additional limit for Q3
FY18 |
27,000 |
|
4. FPI limit
for corporate bonds from 03
Oct 2017 (2+3) |
2,27,322 |
|
of which reserved
for investment by long term FPIs
in infrastructure |
9,500 |
|
5. Additional limit for Q4
FY18 |
17,001 |
|
6. FPI limit
for corporate bonds from
January 01, 2018 (4+5) |
2,44,323 |
|
of which reserved
for investment by long term FPIs
in infrastructure |
9,500 |
3. An amount of ` 9,500 crore in each quarter will be available only for investment in infrastructure sector by long term FPIs (i.e.,
Sovereign Wealth Funds, Multilateral
Agencies, Endowment Funds, Insurance
Funds, Pension Funds and
Foreign Central
Banks). The definition of ‘Infrastructure’ shall be the same as defined under the Master Direction on ECBs issued by the Reserve
Bank of India. Long term FPIs will continue to be eligible to
invest in sectors other than
infrastructure.
4. All other
existing conditions for investment by FPIs in
the debt market remain unchanged.
5. AD Category-I banks
may bring the contents of the
circular to the notice of their customers/constituents
concerned.
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.