The RBI on Friday allowed additional regulated room for FPIs into corporate bonds in order to accelerate inflows into Indian debt through this financial year.The RBI raised the FPI limit by Rs 27,000 cr for Q3FY18 and another Rs 17,000 crore for the last quarter of the year.
Rs 9,500 crore each of the next two quarters can be utilized only for long-term investments in infrastructure. Masala bonds worth Rs 44,001 crore have been shifted from the FPI basket to external commercial borrowings.
This has been made possible by carving out rupee-denominated or Masala bonds, which have been aggressively tapped by India Inc in recent times including the likes of state- run NHAI and NTPC, from the FPI ceiling. The Masala bonds shifted to External Commercial Borrowings include both the existing investments and few transactions in the process underway.
As per analysts, what has enabled the Central bank to relax the curbs on FPI inflows into corporate bonds is that the rupee has changed its direction recently after dollar strength.
In September moth, FPIs have net sold a billion dollars approx, of Indian equities. For the last couple of months, they are ceiling for corporate bonds had virtually put a lid on inflows. In July, Sebi had issued a circular stating FPI investment limits in corporate bonds will have to be allotted through auction once limit utilization crosses 95% of the overall quota.
However, bond issuers and bankers have been keenly looking forward to the hike after the limit utilization reached almost 100 percent and fresh masala bond issuances were halted by Sebi in July.
As per estimate by Aberdeen Asset Management, FPIs own about 7.5% of India’s government and corporate debt, in comparison with 30% in Indonesia and Malaysia.