Ceiling for FIIs in gilts, treasury bills at $1.75 bn

Reserve Bank of India (RBI) is understood to have imposed a $1.75 billion ceiling on foreign institutional investors' investment in dated government securities and treasury bills, and a $500 million cap on their investments in corporate debt.

According to the plan, any investment by a FII in excess of $500 million in corporate debt will have to be pared and the capital market regulator Securities and Exchange Board of India (Sebi) will intimate the timeframe for paring of such exposures, said sources.

This was contrary to the suggestion of Sebi that the $1.75 billion limit is inclusive of FIIs' exposure in government securities, treasury bills and corporate debt.

Also, the $500 million cap on investments in corporate debt means that a FII could have a $2.25 billion of investment in such instruments.

To this extent, even if some bond holders are in excess of $500 million, it should not create a problem, Sebi had clarified to the Union finance ministry and RBI.

Currently, custodian banks are holding corporate debt to the tune of over $1 billion as against the cap of $500 million which they had bought during the intermittent period between November 29 and December 2.

On November 29, Sebi had excluded corporate bonds from the $1.75 billion cap put on FIIs' invest in the debt market. It was interpreted that FII investment in corporate debt would be unlimited.

On December 2, Sebi clarified that the FII investment limit in corporate debt would be limited to $500 million.

Following the Sebi ruling, many public sector undertakings and financial institutions floated debt issues which were lapped up by FIIs.