RBI enhances FII limit in G-Secs by $5 billion

To bridge the current account deficit, the Reserve Bank of India (RBI) on Thursday increased FII investment limits in government securities and corporate bonds by $5 billion each, taking the total cap in domestic debt to $75 billion.

In a notification, the RBI said the 3 year lock-in period for foreign institutional investors (FIIs) purchasing government securities (G-Secs) for the first time has been done away with.

Further, it said the sub-limit of $10 billion for investment by FIIs and long-term investors in G-Secs stands enhanced by $5 billion. As for the limit in corporate debt -- other than infrastructure sector -- the RBI said it (the limit) stands enhanced from $20 billion to $25 billion. 

With an increase of $5 billion in each of the two categories, FIIs and long-term investors can now invest $25 billion in G-Secs and $50 billion in corporate debt instruments, taking the total to $75 billion.

Where as the earlier FII investment limit in G-Secs was $20 billion and for corporate debt it was $45 billion, including sub-limit of $25 billion for infra bonds. Furthermore, the apex bank said: "Residual maturity condition shall not be applicable for the entire sub-limit (in GSecs)of $15 billion but such investments will not be allowed in short-term paper like Treasury Bills, as hitherto". 

The objective of the Union government, which is combating a high current account deficit (CAD), is to attract more foreign funds into the country.  The CAD touched a record high of 5.4 percent in the July-September quarter of the current fiscal.

In order to check outflow of foreign currency, the government recently hiked import duty on gold and also took steps to encourage mutual funds park their gold in deposit schemes offered by banks.