Investment bankers are understood to have requested the authorities — the Reserve Bank of India (RBI) and the finance ministry — for a higher foreign investment limit for corporate bonds. The current limit is $51 billion which includes masala bonds. The argument being put forward is that the value of the rupee has depreciated since the original limits were fixed in dollar terms. However, the central bank is unlikely to consider the request since the limits are now fixed in rupee terms and not in dollar terms. Last week, the Securities and Exchange Board of India (Sebi) said all on-tap purchases by FPIs (foreign portfolio investors) would be stopped once the investment crosses 95% of the allotted limit. Latest data shows that FPIs have already used up 95% of the limit. As of now FPIs are permitted to invest “$51 billion” or “Rs 2.44 lakh crore” into corporate bonds — both figures are mentioned on the depositories side by side. The exchange rate for this limit was set when the rupee was hovering around 50 to the greenback. “Some I-Bankers want the the current exchange rate to be used so as to create more room for FPI investments,” said a banker aware of the matter.
According to the latest depository data, FPIs have used up 96.96% of the permitted limit of Rs 2.44 lakh crore. If the exchange rate is adjusted to say `65, the total available limit of $51 billion will translate into Rs 3.31 lakh crore. That would bring down the utilisation level to just over 71% of the permitted quota leaving lot of room for further FPI investments. However, some treasurers observed the RBI is highly unlikely to make this concession considering that it would increase the limit by over Rs 80,000 crore at a time when inflows into Indian debt are at their highest and the rupee has strengthened appreciably. FPIs have so far pumped more than $16.8 billion into Indian debt.
The inflows have been so strong that with the strengthening of the Rupee, the Reserve Bank of India has beefed up its forex reserves which now stand at a record high of $389.05 billion. “We have not heard anything back from the regulator though,” the banker indicated. It is noteworthy that Sebi had also indicated the issuance of Masala bonds, or rupee-denominated bonds, in the overseas market will temporarily cease till utilisation of investment limits in corporate debt falls below 92%. One of the suggestions, according to a source, was to release the withheld limits under the “undrawn amount under rupee-denominated bonds overseas”.
Till Monday, the limit stood at Rs 7,790 crore. “The request was to release or free those limits and put them under the general category so that the limit utilisation falls below 92% and those who are in line at present can issue Masala bonds,” one banker said. However, according to the latest data, the unreleased limit has hit Rs 11,620 crore. This means that even if this limit is released, the total utilisation would still remain above 92% thereby, leaving no room for masala bond issuance.