Concerned over the dismal inflow of overseas funds in corporate bonds, the Centre might relax the minimum lock-in period for foreign institutional investors (FIIs). Foreign investors have so far put in only $80 million in infrastructure bonds, against the target of $25 billion.
“We are considering cutting the lock-in period from the existing three years,” a finance ministry official said on Wednesday. When asked whether the lock-in period would be reduced to two years, the official said it may be even less.
The finance ministry’s efforts to attract FIIs to invest in infrastructure bonds has not had an encouraging response from the overseas investors, despite a rise in the cap. The ceiling was raised four times from $5 billion to $20 billion and again to $25 billion in this year’s Budget.
As on June 30, $80 million or Rs 352 crore was invested in India by FIIs. The lock-in period is to be one of the key issues in wooing FIIs for infra bonds. During the lock-in period, FIIs cannot sell but trade among themselves in such bonds.
The bonds must have a minimum five-year tenor for FIIs to invest in them. The condition will continue to remain intact, said the official.
Infrastructure remains a concern and has hurt India’s growth prospects. Investment needs are pegged at $1 trillion for the next five financial years. The government has been trying to enable companies raise funds for the infrastructure sector to build roads, ports and enhance the power sector, among others.
In this regard, Finance Minister Pranab Mukherjee had announced the setting up of infrastructure debt funds in his Budget speech. The guidelines for the funds will be issued by Sebi and RBI.
“Market regulator Sebi is expected to take up the issue at its board meeting tomorrow. The board is also likely to consider with know your customer (KYC) norms for all asset classes,” the official added.
A sub-committee of the Financial Stability and Development Council (FSDC) has decided that each regulator will consider common KYC norms for sectors falling under its jurisdiction and forward the recommendations to the sub-committee. The sub-committee would then consider whether common KYC norms for all financial sectors could be established or not.
