RBI Updates Investment Limits for FPIs for 2024-25

Posted On - 30 May, 2024 • By - King Stubb & Kasiva

Introduction

The Reserve Bank of India (RBI) has released a new circular, A.P. (DIR Series) Circular No. 03, dated April 26, 2024, detailing the investment limits for Foreign Portfolio Investors (FPIs) in government securities, state government securities, and corporate bonds for the financial year 2024-25.[1] This update, addressed to all Authorized Dealer Category-I (AD Category-I) banks, maintains the previous year’s limits while outlining specific allocations and guidelines for FPIs.

Explanation

The RBI’s circular draws attention to the Foreign Exchange Management (Debt Instruments) Regulations, 2019, and various subsequent directions, highlighting the continuity and adjustments in investment limits for FPIs.

For the financial year 2024-25, the limits for FPI investment remain unchanged:

  • Government securities (g-secs): 6% of the outstanding stock.
  • State government securities (SGSs): 2% of the outstanding stock.
  • Corporate bonds: 15% of the outstanding stock.

The circular emphasizes that all investments by eligible investors in the specified securities will be counted under the Fully Accessible Route (FAR) as per the guidelines in A.P. (DIR Series) Circular No. 25, dated March 30, 2020. The allocation of incremental changes in the g-sec limit between the ‘General’ and ‘Long-term’ sub-categories is retained at a 50:50 ratio for 2024-25. Additionally, any increase in the SGSs limit has been added entirely to the ‘General’ sub-category.

The circular also outlines the revised limits for the various categories in absolute terms for the two halves of the financial year 2024-25:

Category Apr 2024 – Sept 2024 Oct 2024 – Mar 2025
G-Sec General ₹2,68,437 Crore ₹2,68,984 Crore
Long Term G-Sec ₹1,37,437 Crore ₹1,37,984 Crore
General SGS ₹1,05,290 Crore ₹1,17,752 Crore
Corporate Bonds ₹7,15,687 Crore ₹7,63,503 Crore
Total Debt ₹12,33,951 Crore ₹12,95,322 Crore

Furthermore, the aggregate limit of the notional amount of Credit Default Swaps (CDS) sold by FPIs will be 5% of the outstanding stock of corporate bonds, translating to an additional limit of ₹2,54,500 crore for 2024-25.

Conclusion

The RBI’s latest circular ensures clarity and stability in the investment landscape for FPIs, maintaining previous limits while making strategic allocations for the upcoming financial year. AD Category-I banks are urged to inform their clients and constituents of these updates to facilitate compliance and optimize investment strategies. These directions, issued under the Foreign Exchange Management Act, 1999, reinforce the RBI’s commitment to regulating foreign investments in a structured and transparent manner, ensuring the growth and stability of the Indian financial markets. By maintaining consistent investment limits and providing clear guidelines, the RBI aims to foster an environment that is conducive to both foreign investments and the overall economic health of the country.

[1] https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12675&Mode=0