Lok Sabha Question No. 652 (UNSTARRED), answered on 2018-07-20
Subject: Foreign Investment in Bonds
Ministry: FINANCE
Asked by: PARASURAMAN K.

## MINISTRY OF FINANCE

## DEPARTMENT OF ECONOMIC AFFAIRS

## LOK SABHA

## UNSTARRED QUESTION NO. 652

TO BE ANSWERED ON FRIDAY JULY 20,201G/ASHADHA 29/1940 (SAKA)

## FOREIGN INVESTMENT IN BONDS

## 652: Shri: KPARASURAMAN:

Will the Minister of FINANCE be pleased to state

- (a) Whether Reserve Bank of India has relaxed norms for foreigu investment in bonds after some weekly auctions failed to attract investor interest;
- (6) if so the details thereof and reasons therefor; and
- (c) the measures taken/monitoring mechanism   devised by the Government to ensure that the funds raised:through External Commercial Borrowings (ECBs) may not be invested in real estate or used for purchase of land except for housing, industrial parks

## ANSWER

## MINISTER OF STATE NN THE MINISTRY OF FNNANCE

## (SHRI PON RADHAKRISHNAN)

- a) & b) Medium  Term Framework (MTF) for Foreign Portfolio Investments  (FPI) in Central Government  Securities (G-Secs) ad State Government  Securities (SDLs) introduced in October 2015,was to complete in March 2018, and therefore, a review of the same was due. Subsequently, it was 'announced in the Fourth Bi-monthly Monetary Policy Statement, 2017-18 on October 04, 2017 that a detailed review of current regulations on FPI debt investment shall be undertaken to facilitatethe' process of investment ad hedging by FPIs, keeping in mind macro-prudential considerations Accordingly, review was undertaken and certain modifications in the extant regulations for FPI investment in debt was announced by RBI vide circulars dated 64 April 2018 and April 2018. The review was undertaken consequent to the culmination of the Medium Term Framework (MTF) on March 31s\_ 2018 and not related to reduced investor interest in weekly auctions  The changes in extant norms announced by RBI on April 06,2018 & April 27,2018 have been listed in Annexure 1 27th
- c) Under the External Commercial Borrowings (ECB) framework of Reserve Bank of India affordable housing as defined in Harmonised Master List of Infrastructure Sub-sectors notified by the Government of   India; construction and development   of   SEZ, and industrial   parkslintegrated townships  The primary responsibility for ensuring that the borrowing is in compliance with the applicable guidelines (including end use of ECB proceeds) is that of the borrower concerned contravention of the applicable provisions of ECB guidelines will invite Foreign Exchange Management Act (FEMA) 1999. The designated Authorized Dealer bank also has to ensure compliance transactions undertaken by the company and providing certification of a Company Secretary/Chartered Accountant   while raising ECB. During the monthly reporting of ECB, the Autborized Dealer bank is required to certify that the utilisation of ECB proceeds are found to be in order and in conformity with the applicable ECB guidelines and also provide a certification of a Company Secretary/Chartered Accountant in this regard Any penal

## 2018/Ashadha 29/1940 (Sakalregarding 'Foreign Investment in Bonds"

## Measures announced by RBI on FPI investment in debt on April 06, 2018 and April 27,2018

- investment  in  Central   Government   securities increased   from 5% to
- The overall limit for FPI investment in corporate bonds fixed at 9 of outstanding stock of 'corporate bonds and all subcategories were discontinued
- Minimum residual maturity restriction of 3 years for investment in Government Securities was removed; provided,the short term investmnert (residual maturity less than ] year) is not more than 20% of the total investment in the same\_
- iv. In corporate bonds, FPIs can invest in above I-year maturity securities, provided  short term investments (residual maturity less than.l year) are not above 20% of their total investments in the same.
- 'Aggregate security-wise cap in Government Securities was revised upwards from 20% to 30% of the outstanding stock of the security.
- vi Concentration limit of 15% for long term FPIs and 10% for other FPIs of prevailing investment, limit in Government Securities, State Development Loans and Corporate bonds was introduced
- vii: exposure to & corporate and maximum of S0% investment in any single issue.