Sebi rationalises debt limits for foreign investors

The Securities and Exchange Board of India (Sebi) on Monday announced rationalisation of debt limits for foreign institutional investors (FIIs) in line with RBI move on the same issue, a move that is expected to attract more overseas investments into the capital market.

Earlier in the day, the Reserve Bank of India (RBI) had also come out with notification on rationalising FII investment in bonds.

The existing debt limits for FIIs would be merged into two board categories -- government securities of $25 billion and corporate bonds of $51 billion.

In a circular, the market regulator said that government debt limits of $10 billion and $15 billion for long term ones would be merged into a single category having a limit of $25 billion equivalent to Rs 124,432 crore.

Meanwhile, the combined limit for corporate debt category would be $51 billion or Rs 244,323 crore.

According to Sebi, eligible FIIs and QFIs can invest in Treasury Bills only up to $5.5 billion, within the limit of $25 billion.

In the case of commercial papers, they can invest only up to $3.5 billion within the limit of $51 billion.

"On account of the room created by unifying the debt categories, the current Sebi auction mechanism of allocating debt limits for corporate bonds, shall be replaced by the 'on tap system' currently in place for infrastructure bonds," the circular said.

Further, the current practice of "dissemination of fortnightly debt utilisation status shall be discontinued," the circular noted.

The monitoring of investments by FIIs and the dissemination of daily data would be done by the depositories.

Partially modifying the norms, FIIs can now invest in corporate debt without purchasing debt limits till the overall investment reaches 90 per cent. Once that level is reached, the auction mechanism would be initiated for allocation of the remaining limits, as currently in place for corporate debt long term Infrastructure bonds.

For those FIIs which had obtained Debt limits in the auctions held on February 20, 2013 and on March 20, 2013, the time period for utilisation of corporate debt limits allocated through the bidding process would be 60 days.

The status of utilisation of debt limits as on March 31, 2013 indicating the quantum of limits which are freely available for investments by FIIs and QFIs would be put on Sebi website.