On Thursday, the RBI in a bid to provide greater access to Indian debt securities to non-resident investors has further eased norms and allowed foreign portfolio investors (FPIs) to invest in municipal bonds within prescribed limits.
The investment cap in such municipal bonds is to be defined within the FPI investment limit in state development loans or SDLs. SDL limit is currently placed at 2% of outstanding securities.
In March, the apex bank further eased norms by rolling out the voluntary retention route or VRR which allows foreign investments via the route free from regulatory guidelines but the share of FPI investments has to be maintained for a fixed term. In February, the RBI took away its earlier regulation of April 2018 where no foreign portfolio investor was allowed an exposure of over 20% of its bond portfolio to one corporate entity.
FPIs invest in several debt market securities that include government bonds, state development loans and corporate bonds within prescribed limits set by the RBI. As on April 24, FPIs withdrew close to $1.25 billion from debt securities in India as against investment inflow of $3 billion in March.