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RBI allows FPIs to buy T-bills
Why in the news ?
- The Reserve Bank of India (RBI) said Foreign Portfolio Investors (FPIs) will be allowed to invest in treasury bills issued by the government in a move that could lead to more foreign portfolio investment in India.
- The RBI announcement came two days after it allowed foreign investors to invest in government and corporate bonds with tenures below one year.
More on news
- The requirement that investment in securities of any category — government securities, state development loans (SDLs) or corporate bonds — with residual maturity below one year should not exceed 20 per cent of total investment by an FPI in that category applies, on a continuous basis.
- RBI said that at any point in time, all securities with residual maturity of less than one year will be reckoned for the 20 per cent limit, regardless of the maturity of the security at the time of purchase by the FPI.
- If a non-resident entity has set up five funds, each registered as an FPI for investment in debt, total investment by the five FPIs will be considered for application of concentration and other limits.
- The central bank had withdrawn the minimum residual maturity required by FPIs to invest in central government securities and state development loans, subject to a condition that investment in securities with residual maturity below one year should not exceed 20% of the total investment of that FPI in that category.
- So far, FPIs were required to invest in G-secs with a minimum residual maturity of three years.
- For corporate bonds, FPIs are permitted to invest in papers with minimum residual maturity of above one year.
- The step is likely to bring in considerable foreign fund flows into short-tenor paper—arguably an attractive segment for foreign investors.
What is FPI ?
- Foreign Portfolio Investment (FPI) is investment by non-residents in Indian securities including shares, government bonds, corporate bonds, convertible securities, infrastructure securities etc.
- The class of investors who make investment in these securities are known as Foreign Portfolio Investors.
- Foreign Portfolio Investors includes investment groups of Foreign Institutional Investors (FIIs), Qualified Foreign Investors (QFIs) (Qualified Foreign Investors) and subaccounts etc. NRIs doesn’t comes under FPI.
- As per SEBI regulations, FPIs are not allowed to invest in unlisted shares and investment in unlisted entities will be treated as FDI.
Source
Indian Express, Indian Economy.