The Reserve Bank of India (RBI) has increased the corporate bond investment limit for foreign investors by taking out rupee-denominated bonds, or Masala bonds, from the ambit of total debt investment limit.
Currently, the limit for investment by Foreign Portfolio Investors (FPIs) in corporate bonds is Rs. 244,323 crore. This includes issuance of Rupee denominated bonds overseas (Masala Bonds) by resident entities of Rs. 44,001 crore (including pipeline). The Masala Bonds are presently reckoned both under Combined Corporate Debt Limit (CCDL) for FPI and External Commercial Borrowings (ECBs). With effect from October 3, masala bonds will no longer form a part of the limit for FPI investments in corporate bonds. They will form a part of the ECBs.
The move will release additional space for yield-hungry foreign portfolio investors (FPI), who can now invest up to another Rs 44,000 crore in the debt securities of companies like Housing Development Finance Corporation and NTPC. The amount of Rs 44,001 crore arising from shifting of Masala bonds will be released for FPI investment in corporate bonds over the next two quarters.
An amount of Rs 9,500 crore in each quarter will be available only for investment in infrastructure sector by long term FPIs (i.e. sovereign wealth funds, multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks). Long-term FPIs will continue to be eligible to invest in sectors other than infrastructure.