- The Reserve Bank of India (RBI) has raised the debt investment limits for foreign portfolio investors (FPIs) across all segments, including central government securities (G-secs).This would lead to a cumulative increase of over Rs 1 lakh crore through Financial year 2018-19.
- Though the hike in limit for G-secs — 0.5 per cent each year to 5.5 per cent of the outstanding stock in FY19 and 6 per cent of the stock in FY20 — was a bit lower than market expectations, analysts felt the move would help bring down the yields further at least in the short term.
- The RBI’s decision could also ease pressure on local banks to support the government’s borrowing programme and free up liquidity to support an incipient investment cycle.
- Currently, the FPI limit for general category G-sec investors stands at Rs 1.91 lakh crore; this has been raised to Rs 2.07 lakh crore for the first half of FY19 and further to Rs 2.23 lakh crore for H2FY19. For long-term FPI investors, the limit has been increased to Rs78,700 crore for the first half of FY19 and to Rs 92,300 crore for the second half of FY19.
- Coupon reinvestment by FPIs in G-secs, which was hitherto outside the investment limit, will now be reckoned within the G-sec limits. No fresh allocation has been made to the ‘long-term’ sub-category under state development loans (SDLs), the RBI said.
- Out of the existing limit of Rs 13,600 crore for this subcategory (SDLs), an amount of Rs 6,500 crore has been transferred to the G-secs category.
Source:Economic Times