The Reserve Bank of India (RBI) on Sept 22, eased rules governing foreign investment in corporate bonds by excluding rupee-denominated securities from its overall debt limit.
The move potentially freed up Rs 440 billion ($6.79 billion) of debt available to offshore investors.
Access to the corporate bonds by foreign investors will be phased in over the next two quarters, Rs 270 billion during October-December and Rs 170 billion in January-March, the Reserve Bank of India said in a circular.
Rupee-denominated bonds, widely known as masala bonds, will now come under rules for external commercial borrowings and issuers will have to take prior permission from the RBI to raise the paper.
Earlier these masala bonds used to be classified under the foreign portfolio investment limit for corporate bonds that stands at Rs 2.44 trillion. This total limit has been fully taken up following massive foreign inflows.
So far this year India has attracted $23.7 billion in debt investment and $6.08 billion in equity purchases, helping the rupee rise by 4.8 percent.
“It is in a way further liberalisation for foreign investors,” said one official, adding that India’s external debt is in comfortable shape.
India’s total external debt stood at $471.9 billion as of the end of March, of which external commercial borrowings stood at $124.5 billion, according to the RBI data.
Interest in Indian debt has been very steep among foreign investors. This is seen from the high cut-off fees they paid to buy the marginal limits available under corporate debt.
The cut-off stood at 50.01 basis points for Rs 22.29 billion of auction on Sept 22, compared with 15.25 bps a month back.
The RBI also said that some Rs 95 billion of debt will be available every quarter to long-term foreign investors such as sovereign wealth funds, foreign central banks, insurance funds for investment in infrastructure sector bonds.
