The Reserve Bank today relaxed norms for issuance of rupee-denominated overseas bonds, popularly known as masala bonds, saying they will be treated as external commercial borrowings from October 3, thereby freeing up more investments by FPIs.
Currently, the limit for investment by foreign portfolio investors (FPIs) in corporate bonds is Rs 2,44,323 crore. This covers issuance of masala bonds by resident entities of Rs 44,001 crore, including the ones in pipeline.
After a review, the RBI said that from October 3, masala bonds will no longer form part of the limit for FPI investments in corporate bonds.
"They will form part of the ECBs and will be monitored accordingly," the central bank said in a notification.
As a result, Rs 44,001 crore arising out of shifting of masala bonds will be released for foreign portfolio investor (FPI) investment in corporate bonds over the next two quarters.
Now, FPI investment limit for corporate bonds will increase to Rs 2,44,323 crore from January 1.
Further, an amount of Rs 9,500 crore in each quarter will be available only for investment in the infrastructure sector by long-term FPIs -- sovereign wealth funds, multilateral agencies, endowment, insurance and pension funds and foreign central banks -- the notification added.
Karthik Srinivasan, Group Head - Financial Sector Ratings, ICRA, said that with surge in inflows in Indian debt markets, the cumulative utilisation of FPI limit in corporate bonds stood at 99.07 per cent as on September 21, 2017, reflecting limited scope of further FPI investments.
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