FII limit in G-Secs may be hiked by $5 billion

New Delhi | Published: March 12, 2015 3:39:44 AM

Foreign institutional investors’ (FII) limit in government securities may be increased by $5 billion to $35 billion as the government plans to...

Foreign institutional investors’ (FII) limit in government securities may be increased by $5 billion to $35 billion as the government plans to front-load borrowing from the market in H1FY16 even as concerns mount over the impact of a possible interest rate hike by US Federal Reserve, sources told FE.

The government and the RBI may earmark the increased amount for long-term investors, such as pension funds and sovereign wealth funds, to ensure stable capital inflows. At present, the $30-billion foreign investment limit in G-Sec has been fully subscribed. Out of the $30 billion, FIIs are allowed to invest $25 billion, whereas $5 billion is for long-term investors.

Last month, the RBI allowed foreign investors to reinvest their G-Sec coupon money back into the G-Secs, over and above the permissible $30-billion limit.

Higher interest differential, compared to most developed economies, has contributed to G-Secs being a sought-after asset class for FPIs. “There is scope to increase foreign investment limit by at least $5 billion in G-Secs. The decision in this regard will be taken after consultation with the RBI,” a source said.

The higher foreign investment limit will help ease liquidity conditions as the government will be tapping the market for a large part of its R6-lakh-crore borrowing plan for FY16, in the first six months of the year, to meet payment obligations when tax collections remain benign.

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