RBI Relaxes Debt Market Regulations for Foreign Portfolio Investors (FPIs)

For foreign portfolio investors in the corporate debt market, the RBI has loosened investment restrictions. This action is probably going to increase market liquidity and bring India closer to international capital flows. The RBI declared that it would eliminate the concentration limit and short-term investment cap that were previously in place for FPIs making general route investments.

Under the earlier framework, FPIs could only invest in corporate bonds with a residual maturity of more than one year. Additionally, their holdings were limited to 50% of any one issuance, with stricter restrictions depending on the kind of investor.

The voluntary retention route, a distinct channel with lock-in conditions, was not included in the previous restrictions meant to lower concentration risk and stop speculative flows. But now that these limitations have been lifted, foreign investors have more options for allocating their funds.

The updated regulations allow Foreign Portfolio Investors (FPIs) to freely invest across the maturity curve and own a greater portion of individual bond issuances. Securities with maturities shorter than a year fall under this category. It is anticipated that the loosened regulations will increase participation in the Indian debt market, improving liquidity and opening doors for foreign investors to employ strategic investment plans.