India to sell $7.15 billion in debt quotas

India will auction Rs 42,022 crore in unused government debt limits to foreign investors on June 20, a source with direct knowledge of the plans said on Wednesday.

Market regulator Securities and Exchange Board of India (SEBI) had earlier announced it would auction unused debt limits on Thursday, but had not disclosed the exact amount.

These debt quotas give foreign investors the right to invest in debt up to the limit bought. Foreign investors have sold $470 crore in government debt over 18 consecutive sessions until Friday as the rupee has slumped to a record low, thus eroding returns.

This will mark India's first auction since raising investment limits for foreign investors in government debt by $5 billion to $30 billion, though that increase applies only to long-term investors and will be available on a first come, first serve basis.

A senior RBI official had said on Tuesday that the economic logic for foreign funds to invest in domestic debt instruments is withering away as yield differentials are narrowing fast, owing to the steep fall in the rupee.

SBI deputy managing director and group executive for global markets P Pradeep Kumar also said that looking at the real interest rate and the macro fundamentals of the economy, the rupee has to depreciate by 5 per cent every year.

"The rupee fall is primarily due to (US Fed Chairman) Ben Bernanke's statement of a possible QE3 slowdown. Also, the US interest rates have gone up of late. If you see yield of 10-year US treasury, it is more than 2.21 per cent.”