In a bid to check rupee's free falling against the US dollar, the Reserve Bank of India (RBI) on Monday hiked the limit of external commercial borrowing (ECB) to USD 10 billion. Moreover, the regulator also increased the limit of overseas investment in government bonds by USD 5 billion to USD 20 billion.
"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 the approval route. The overall ceiling for such ECBs would be USD 10 billion," RBI said in a press release after consulting the government of India.
Currently, Foreign institutional investors (FIIs) can investment in Indian corporate bonds upto USD 20 billion. While the cap in government bonds is at USD 15 billion, FIIs are barred to invest in infrastructure bonds upto USD 25 billion.
Along with the hike in investment limit, RBI also enlarged the basket of investors including sovereign wealth funds (SWFs), multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks; to invest in government bonds for entire limit of USD 20 billion.
Overseas investors so far have not shown enough interest in infra bonds while the demand for corporate bonds and government bonds are relatively higher.
Currently, FIIs can earn an interest rate in the range of 9.30-9.50% for a AAA rated instrument. For corporate bonds, it is slightly higher in the range of 9.70-9.75% for the similar kind of papers.
"Overall there are dissapointments but it (measures) has some positive takeaways," Moses Harding, head of ALCO & economic research, IndusIndus told Moneycontrol.com.
"The increase in G-sec limits will have immediate impact while other two measures would yield results in short to medium term. The demand for government bonds is still persisting among FIIs while it has been tepid for both corporate and infra bonds. Moreover, measures indicate that both RBI and government are equally concerned about exchange rate," he said.
Side by side, RBI made efforts to tap investments by qualified foreign investors (QFIs) to resist rupee's downfall against the greenback.
QFIs, according to the release, can now invest in mutual fund schemes that hold at least 25% of their assets (either in debt or equity or both) in infrastructure sector under the current USD 3 billion sub-limit for investment in mutual funds related to infrastructure.
"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," RBI added further.
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