June 25, 2012 / 16:36 IST
Moneycontrol Bureau
In a bid to check rupee's free falling against the US dollar, the Reserve Bank of India (RBI) on Monday hiked the limit of external commercial borrowing (ECB) to USD 10 billion. Moreover, the regulator also increased the limit of overseas investment in government bonds by USD 5 billion to USD 20 billion.
"It has been decided to allow Indian companies in manufacturing and infrastructure sector and having foreign exchange earnings to avail of 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," RBI said in a press release after consulting the government of India.
Currently, foreign institutional investors (FIIs) can invest in Indian corporate bonds upto USD 20 billion. While the cap in government bonds is at USD 15 billion, FIIs are barred to invest in infrastructure bonds upto USD 25 billion. The enhancement of limit by USD 5 billion in g-secs came with a maturity of three years as against five years earlier.
"Overall there are dissapointments but it (measures) has some positive takeaways," Moses Harding, head of ALCO & economic research,
IndusInd Bank told
Moneycontrol.com."The increase in G-sec limits will have immediate impact while other two measures would show results in short to medium term. The demand for government bonds is still persisting among FIIs while it has been tepid for both corporate and infra bonds. Measures indicate that both RBI and government are equally concerned about exchange rate," he said.
Along with the hike in investment limit, RBI also enlarged the basket of investors including sovereign wealth funds (SWFs), multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks; to invest in government bonds for entire limit of USD 20 billion.
According to Arvind Konar, head-fixed income, Almondz Global Securities, FIIs have almost exhuasted the limit in g-secs. With the extension of limit and investors kitty as well, it will attract more foreign funds. The additional limit can easily be availed off by investors.
Currently, FIIs can earn an interest rate in the range of 9.30-9.50% for a AAA rated instrument. For corporate bonds, it is slightly higher in the range of 9.70-9.75% for the similar kind of papers.
Side by side, RBI made efforts to tap investments by qualified foreign investors (QFIs) to resist rupee's downfall against the greenback.
QFIs, according to the release, can now invest in mutual fund schemes that hold at least 25% of their assets (either in debt or equity or both) in infrastructure sector under the current USD 3 billion sub-limit for investment in mutual funds related to infrastructure.
"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," RBI added further.
In terms of equity market, according to market participants, RBI steps in association with the government did not include anything that would boost foreign fund flows in India.
saikat.das@network18online.com 
