FPI Limit in Bonds Raised By Reserve Bank of India
The Reserve Bank of India has raised the foreign ownership limit on government bonds amid rising global investor interest for domestic debt papers.
RBI has increased the ceiling by 100 basis points to 6% of outstanding sovereign securities in two financial years until March-end, 2020. This would allow additional purchases of about Rs 59,200 crore collectively in this financial year, show data from the RBI note.
RBI stated that the limit for foreign portfolio investor in central government securities would be increased by 0.5% each year.
In the market, overseas investors are allowed to own up to 5% of available government securities. The limit is almost exhausted as yield-hungry investors are rushing to buy emerging market bonds offering high real returns.
Furthermore, the RBI has shifted some unutilised limit of long-term state-bonds to the long-term government bond category.
According to MS Gopikrishnan, the limit increase is less than anticipated. However, the increase will add to the positive market sentiment. It will also address the demand-supply gap in gsecs.