The Reserve Bank of India has removed the limit on investments by foreign portfolio investors in corporate bonds, which was set at 20 per cent. The Reserve Bank in its notification stated, “In order to encourage a wider spectrum of investors to access the Indian corporate debt market, it has been decided to withdraw this provision with immediate effect.”
RBI also added that as part of the review of FPI investments in corporate debt undertaken in April 2018, it was stipulated that no FPI should have an exposure of more than 20 per cent of its corporate bond portfolio to a single corporate, including exposure to entities related to the corporate.
According to the RBI statement, the provision was meant to incentivising FPIs to maintain a portfolio of assets, market feedback indicates that they instead have been constrained by this stipulation. The RBI also informed that the directions in this regard have been issued the Foreign Exchange Management Act.