Finance Ministry for increasing FII limit for corporate bonds

New Delhi : The Reserve Bank is considering a Finance Ministry's proposal to increase the limit of foreign institutional investors exposure in corporate bonds, while retaining the current overall cap of USD 8 billion, to get long-term fundings for infrastructure. RBI is considering the proposal and likely to take a view on the issue after some time, sources told PTI. The proposal is to increase the cap for FIIs investment in corporate bonds, while reducing it for government bonds, so that overall limit for their exposure in the bond markets remain the same. Currently, FIIs can invest up to USD 5 billion in government bonds and USD 3 billion in corporate bonds with individual ceiling at USD 200 million. As such, of the total limit for FIIs exposure in bonds, 37.5 per cent belongs to corporate bonds. The proposal says that share of corporate bonds should be increased up to 75 per cent of the total exposure in the bond markets for FIIs. These limits were recently raised from the earlier caps of USD 3.2 billion for G-secs and USD 1.5 billion for corporate bonds. The sources said limit for corporate bonds should be enhanced with the condition that they should be locked for minimum of seven years so that long-term funds can be accessed for infrastructure development. India needs around USD 500 billion for infrastructure development in the Eleventh Five Year Plan. Since these corporate bonds would be in rupee denomination, the issuer, that is Indian corporates, do not run the risk from foreign exchange movement. As such, they could be better option for Indian corporates than ECBs where there is a risk from exchange variation.

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