The Reserve Bank of India (RBI) on Thursday revised the foreign portfolio investors' investment limits in central government securities (G-secs) and state development loans (SDLs).
The Reserve Bank of India (RBI) on Thursday revised the foreign portfolio investors’ investment limits in central government securities (G-secs) and state development loans (SDLs). The limits have been increased by Rs 8,000 crore taking it to Rs 2.5 lakh crore for G-secs in the third quarter of fiscal year 2018. For SDLs, the limits have been increased by Rs 6,200 crore to Rs 39,300 crore. The revised limits will be effective from October 3. Within the G-secs category, limits for long-term FPIs have been increased by Rs 6,000 crore to Rs 60,300 crore while that of general category FPIs have been increased by Rs 2,000 crore to Rs 1.89 lakh crore for the third quarter.
Similarly, limits for long term SDLs have been increased by Rs 4,700 crore to Rs 9,300 crore in the third quarter while general category SDLs have seen a hike of Rs 1,500 crore to Rs 30,000 crore. The G-sec limits have already been fully utilised by FPIs while existing SDL limits still remain untilised. Only recently did the central bank hike the limits on corporate bonds by a total of Rs 44,001 crore in a staggered manner over the third and fourth quarters of this fiscal. The RBI did this by separating the masala bond segment from the FPI investment limit in corporae bonds.
It seems the central bank has perfectly timed the limit hikes in the corporate bond segment even as the Rupee peaked out in September and began declining following a host of factors including Fed rate hike expectations, domestic fiscal deficit worry, equity sell-off and others. Currently, both the G-secs and corporate bond limits have almost been fully utilised. Whatever limits get freed up intermittently due to sale of securities or redemption, were allotted by the RBI using an auction method where FPIs have to bid for these limits.
Once received, these limits have to be utilised within 10 days. Since the G-sec and corporate bond limits have opened up, FPI fund inflows into these segments is likely to arrest any possible decline in the Rupee thereby saving the RBI considerable firepower in terms of its foreign exchange reserves.