The Reserve Bank of India (RBI), in consultation with the Government of India has decided to introduce the following measures with immediate effect:

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.

The existing limit for investment by Securities and Exchange Board of India (SEBI) registered foreign institutional investors (FIIs) in Government securities (G-Secs) has been enhanced by a further amount of USD 5 billion. This would take the overall limit for FII investment in G-Secs from USD 15 billion to USD 20 billion. In order to broad base the non-resident investor base for G-Secs, it has also been decided to allow long term investors like Sovereign Wealth Funds (SWFs), multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks to be registered with SEBI, to also invest in G-Secs for the entire limit of USD 20 billion. The sub-limit of USD 10 billion (existing USD 5 billion with residual maturity of 5 years and additional limit of USD 5 billion) would have the residual maturity of three years.

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.

Further, Qualified Foreign Investors (QFIs) can now invest in those mutual fund (MF) schemes that hold at least 25 per cent of their assets (either in debt or in equity or both) in infrastructure sector under the current USD 3 billion sub-limit for investment in mutual funds related to infrastructure.

The operational/ regulatory guidelines for the above measures under Foreign Exchange Management Act (FEMA), 1999 are being issued separately.

Alpana Killawala
Chief General Manager

Press Release : 2011-2012/2057

 

Capital account liberalisation expands ECB use for rupee capital expenditure and widens foreign investment access to government securities. Allowing targeted External Commercial Borrowing, Indian manufacturing and infrastructure companies with foreign exchange earnings may obtain ECBs under the approval route to refinance outstanding rupee loans for capital expenditure or to meet fresh rupee capital expenditure; an overall ceiling is prescribed. FII investment limits in government securities are increased and the eligible non resident investor classes broadened, with adjusted sub limit residual maturity; FII infrastructure debt and IDF schemes' lock in and residual maturity terms are rationalised and QFIs may invest in mutual funds with specified infrastructure asset thresholds. FEMA operational guidelines will follow.