FIIs, NRIs can now tap debt floats of banks

The Reserve Bank of India (RBI) today permitted foreign institutional investors (FIIs) and non-resident Indians (NRIs) to subscribe to perpetual debt and debt capital instruments issued by banks.

The permission follows the central bank's decision to allow commercial banks to augment their capital base through issue of perpetual debt instruments eligible for inclusion as Tier-I capital and debt capital instruments as upper Tier-II capital.

RBI has capped investments by FIIs in perpetual debt instruments to 49 per cent of the size of each issue and by individual FII in single issue at 10 per cent.

Similarly, investments by NRIs in these Tier-I instruments cannot exceed 24 per cent of each issue and by single NRI five per cent of each issue.

The investments by FIIs in debt capital instruments (tier-II) will be within the limits stipulated by the Securities and Exchange Board of India (Sebi) for FII investment in corporate debt.

Investment by NRIs in these instruments will be in accordance with the extant policy for investment by NRIs in other debt instruments.

The apex bank has also given banks the go-ahead for raising capital through perpetual non-cumulative preference shares (Tier-I) and redeemable cumulative preference shares (Tier-II), but has decided to issue detailed guidelines later.

The amount raised from innovative debt instrument cannot exceed 15 per cent of total Tier-I capital. The innovative debt instruments in excess of the limit will be eligible for inclusion in Tier II, subject to the Tier-II ceiling.

The capital raised through the upper Tier-II debt capital instruments will need to have minimum maturity of 15 years. The total Tier-II capital, including the current instruments, has been limited to 100 per cent of the Tier-I capital. The Tier-I capital currently includes equity capital and reserves.

The amount raised by banks through innovative instruments would attract cash reserve ratio (CRR) and statutory liquidity ratio (SLR) norms.