Skip to main content

RBI widens FPIs’ investment scope in local corporate debt

By
RBI widens FPIs’ investment scope in local corporate debt
Mint Street late on Tuesday raised the incentive for Corporate India to tap the bond market for its working capital needs, allowing foreign portfolio investors (FPIs) to invest a fifth of their total corpus in less than one-year residual debt papers sold by local companies.
The latest directive extends last week’s concessions that effectively enhanced shortterm GSec ownership by overseas funds. Although the policy maker has not raised benchmark rates yet in Asia’s third-biggest economy, the cost of funds at the short end of the yield curve has accelerated much faster than the long end, threatening to increase working capital expenses in an economy where the weighted average cost of capital trends higher than developed countries.
“In order to bring consistency across debt categories, it is stipulated that investments by an FPI in corporate bonds with residual maturity below one year shall not exceed, at any point in time, 20 per cent of the total investment of that FPI in corporate bonds,” the Reserve Bank of India (RBI) said late Tuesday.Before this change, FPIs were only permitted to invest in corporate bonds with minimum residual maturity of three years or above. They are now being allowed to invest in securities of less than one year, with up to 20 per cent of their corpus.
“More companies may tap the corporate bond market to meet their working capital requirement as we see overall demand to be improving in shorter maturity for carry trades,” said Ajay Manglunia, executive vice president at Edelweiss Financial Services. “FPIs are allowed to invest a decent portion of investments into less than one-year corporate bonds.  This (the latest move) will create additional demand for shorter maturity papers.
”RBI last week eased investment norms for overseas funds after weekly sovereign bond auctions partially failed to elicit investor interest. It allowed FPIs to invest in treasury bills and shorter maturity sovereign debt instruments in its latest move to ease foreign investment rules. RBI had liberalised FPI limits in government securities on Friday, allowing such investors to invest 20 per cent of their total deployment in GSecs. Tuesday’s notification brings corporate bonds on a par with government securities
.However, investors who have more than 20 per cent of their investments with less than one year residual maturity, as on May 2, 2018 (beginning of day), have to bring such share below 20 per cent within a period of six months.
The Economic Times, New Delhi, 02nd May 2018

Comments

Post a Comment

Popular posts from this blog

Household debt up, but India still lags emerging-market economies: RBI

By
  Although household debt in India is rising, driven by increased borrowing from the financial sector, it remains lower than in other emerging-market economies (EMEs), the Reserve Bank of India (RBI) said in its Financial Stability Report. It added that non-housing retail loans, largely taken for consumption, accounted for 55 per cent of total household debt.As of December 2024, India’s household debt-to-gross domestic product ratio stood at 41.9 per cent. “...Non-housing retail loans, which are mostly used for consumption purposes, formed 54.9 per cent of total household debt as of March 2025 and 25.7 per cent of disposable income as of March 2024. Moreover, the share of these loans has been growing consistently over the years, and their growth has outpaced that of both housing loans and agriculture and business loans,” the RBI said in its report.Housing loans, by contrast, made up 29 per cent of household debt, and their growth has remained steady. However, disaggregated data sho...
Post a Comment
Read more

External spillovers likely to hit India's financial system: RBI report

By
  While India’s growth remains insulated from global headwinds mainly due to buoyant domestic demand, the domestic financial system could, however, be impacted by external spillovers, the Reserve Bank of India (RBI) said in its half yearly Financial Stability Report published on Monday.Furthermore, the rising global trade disputes and intensifying geopolitical hostilities could negatively impact the domestic growth outlook and reduce the demand for bank credit, which has decelerated sharply. “Moreover, it could also lead to increased risk aversion among investors and further corrections in domestic equity markets, which despite the recent correction, remain at the high end of their historical range,” the report said.It noted that there is some build-up of stress, primarily in financial markets, on account of global spillovers, which is reflected in the marginal rise in the financial system stress indicator, an indicator of the stress level in the financial system, compared to its p...
Post a Comment
Read more

Retail inflation cools to a six-year low of 2.82% in May on moderating food prices

By
  New Delhi: Retail inflation in India cooled to its lowest level in over six years in May, helped by a sharp moderation in food prices, according to provisional government data released Thursday.Consumer Price Index (CPI)-based inflation eased to 2.82% year-on-year, down from 3.16% in April and 4.8% in May last year, data from the Ministry of Statistics and Programme Implementation (MoSPI) showed. This marks the fourth consecutive month of sub-4% inflation, the longest such streak in at least five years.The data comes just days after the Reserve Bank of India’s (RBI) Monetary Policy Committee cut the repo rate by 50 basis points to 5.5%, its third straight cut and a cumulative reduction of 100 basis points since the easing cycle began in February. The move signals a possible pivot from inflation control to supporting growth.Food inflation came in at just 0.99% in May, down from 1.78% in April and a sharp decline from 8.69% a year ago.A Mint poll of 15 economists had projected CPI ...
Post a Comment
Read more