The limits for investing in these municipal bonds are to be set within the limits for FPI investment in state development loans (SDLs). The limits set for SDLs amount to 2% of outstanding securities.
The Reserve Bank of India (RBI) on Thursday further eased norms for foreign portfolio investors (FPIs) by allowing them to invest in municipal bonds under prescribed limits to broaden access of non–resident investors to debt instruments in India, the central bank said in a statement.
The limits for investing in these municipal bonds are to be set within the limits for FPI investment in state development loans (SDLs). The limits set for SDLs amount to 2% of outstanding securities. “Investing in municipal bonds in India is not a popular opinion as majority municipalities are not cash rich, but if FPIs start investing in these bonds, the domestic players also might find interest and also could prove to be a good income source for municipalities,” said Ashutosh Khajuria, V-P, Federal Bank.
The central bank had earlier in March eased norms by introducing the voluntary retention route (VRR), allowing FPI investments through the route free of regulatory norms provided they maintain a share of their investments for a fixed period. The RBI on February also withdrew its April 2018 regulation where no FPI was allowed an exposure of more than 20% of its corporate bond portfolio to a single corporate.
FPIs have pulled out close to $1.25 billion from Indian debt markets as on April 24, against inflows of $3 billion in March this year. FPIs have been investing in various debt market instruments such as government bonds, state development loans and corporate bonds but with prescribed limits and restrictions by the central bank.