India’s central bank has relaxed norms relating to investment by foreign portfolio investors in non-convertible debentures or bonds which are undergoing default. It has now classified them as exempted securities, the regulator said in a notification on Feb. 26.
As per extant policy, investment by FPIs in corporate bonds is subject to a minimum residual maturity of three years, in simple terms – a lock in. FPIs are also permitted to invest in instruments maturing above one year if the short-term investment doesn’t exceed 30% of their total investment in corporate bonds.
So far, investment in two categories of instruments has been specifically exempt from these requirements:
- Security receipts or debt instruments issued by asset reconstruction companies
- Debt instruments issued by an entity undergoing resolution process under the Insolvency and Bankruptcy Code.
The Reserve Bank of India’s announcement now extends the same exemption to investment by FPIs in non-convertible debentures or bonds, which are under partial or full default.
The new norms come after the central bank had said, at the time of the monetary policy announcement on Feb 5, that investment by FPIs in defaulted corporate bonds will be exempted from short term limit and minimum residual maturity requirement under the medium term framework.
