ECB Limits Hiked by $10 Billion by RBI

Monday, June 25th, 2012 | by

FII limit in government bonds has been hiked by the reserve Bank of India to USD 20 billion to wrest the downfall of Indian rupee. Also, for the purpose of refinancing rupee loan, the RBI has allowed upto USD 10 billion from overseas borrowings by India Inc. The decision has been taekn after rounds of talks with the central government. The RBI also said that foreign investor base for government securities is also being widened.

“It has been decided to allow Indian companies in manufacturing and infrastructure sector and having foreign exchange earnings to avail of external commercial borrowing (ECB) for repayment of outstanding rupee loans towards capital expenditure and/or fresh rupee capital expenditure under approval route. The overall ceiling for such ECBs would be USD 10 billion,” said RBI sources.

Following the decision taken by the RBI, long term investors like Sovereign Wealth Funds, endowment funds, multilateral agencies, insurance and pension funds, and foreign central banks will be granted permission to invest in government debts up to USD 20 billion. “Existing limit for investment by foreign institutional investors in G-Secs has been enhanced by USD 5 billion. This would take the overall limit for FII investment in G-Secs from USD 15 billion to USD 20 billion. The sub-limit of USD 10 billion (existing USD 5 billion with residual maturity of 5 years and additional limit of USD 5 billion) would have the residual maturity of three years,” said the statement.

“Also, the terms and conditions for the scheme for FII investment in infrastructure debt and the scheme for non- resident investment in Infrastructure Development Funds (IDFs) have been further rationalised in terms of lock-in period and residual maturity. Further, the conditions for investment by individual foreign investors have been relaxed in Mutual Funds. Qualified Foreign Investors (QFIs) can now invest in those mutual fund (MF) schemes that hold at least 25% of their assets in infrastructure sector under the current USD 3 billion sub-limit for investment in mutual funds related to infrastructure, ” said RBI officials.

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