The Reserve Bank of India (RBI) has decided to expand the list of eligible debt instruments foreign portfolio investors (FPIs) are allowed to invest in and included unlisted securities such as non-convertible debentures (NCDs) and bonds issued by public or private companies.
“Investment basket of foreign portfolio investors will be expanded to include unlisted debt securities and pass through securities issued by securitisation SPVs,” finance minister Arun Jaitley had said in his Budget Speech in February this year.
Consequent to this, the RBI on Thursday said FPIs will now be allowed to invest in unlisted instruments subject to a minimum residual maturity of three years. The regulator has also imposed restriction of the end use of funds raised, saying that issuers cannot use these funds for investment in real estate business, the capital market and in purchase of land.
According to the notification, there are two kinds of securities that have now been included in the basket of eligible instruments for FPIs to invest in.The first kind consists of certificates or instruments issued by special purpose vehicles (SPVs) that have been set up for securitisation of assets where banks, financial institutions or non-banking finance companies are the originators.
The second kind is made up of those securities issued and listed in accordance with the Securities and Exchange Board of India regulations on Public Offer and Listing of Securitised Debt Instruments, 2008.
The apex bank added that FPIs would collectively be able to invest a maximum of Rs 35,000 crore in these instruments and that this Rs 35,000-crore limit would be a part of the overall limit that FPIs have to adhere to for investment in domestic corporate bonds.
Currently, FPIs are permitted to invest up to Rs 2.44 lakh crore in Indian corporate bonds and have utilised around 71% of that limit, which amounts to slightly over Rs 1.68 lakh crore.