RBI Eases Investment Rules for FPIs in Corporate Debt Market

In a significant move to deepen market liquidity and align India more closely with global capital flows, the Reserve Bank of India (RBI) has announced the easing of investment restrictions for foreign portfolio investors (FPIs) in the corporate debt market.

Key Changes in the New Framework

The RBI has decided to remove both the short-term investment cap and the concentration limit that previously applied to FPIs investing through the general route. Under the earlier framework, FPIs were restricted to investing in corporate bonds with a residual maturity of more than one year, and their holdings were capped at 50% of any single issuance.

Impact on Foreign Investors

These changes grant foreign investors greater freedom to deploy capital tactically. FPIs can now hold a larger share of individual bond issues and invest freely across the maturity curve, including in paper with less than one year to maturity. This move is expected to attract more foreign investment into India's corporate debt market.

About the Voluntary Retention Route

It's important to note that these constraints, designed to mitigate concentration risk and discourage speculative flows, did not apply to the voluntary retention route, a separate channel with lock-in conditions.