The Union Government on Thursday raised the investment limit for foreign institutional investors (FIIs) in government securities (G-secs) and corporate bonds by $5 billion each. The current investment limits of $10 billion for G-secs and $15 billion for corporate bonds have almost been reached.
An official statement said that FIIs would now be able to invest up to $15 billion in G-secs and $20 billion in corporate bonds.
Official sources said the policy has been changed in order to induce more capital flows and to make available additional financial resources for corporates.
“The present enhancement will increase investment in debt securities and help in further development of the government securities and corporate bond markets in the country,” the official said and added that the increase in investment limits became necessary as there was little room available for further FII investment in G-secs and corporate bonds.
Corporate investments have been hit due to a slowdown in the global economy and 13 rate hikes by the central bank, making credit expensive.
Lower corporate earnings have impacted the government’s revenues and has led it to increase market borrowings, thereby placing the liquidity position under stress.
Earlier, Subir Gokarn, Deputy Governor of the Reserve Bank of India, had said that revising the debt ceilings for FIIs in corporate and the government bond markets may help in stemming the slide of the rupee to some extent.
The Securities and Exchange Board of India (Sebi) will soon issue a notification to this effect, the statement added.
As against a ceiling of Rs 43,650 crore in G-secs, FIIs had invested Rs 41,253 crore as of October 31, 2011. While in the case of corporate bonds, FIIs have invested Rs 68,289 crore (as of October 31, 2011) as against the ceiling of Rs 74,416 crore.
Together, with $25 billion that can be invested in infrastructure bonds, the total FII limit in corporate bonds now stands at $45 billion. The government may also increase a $30 billion ceiling on overseas borrowings by companies, the official said.
Companies have raised about $20 billion through external commercial borrowings between April and October.