In consultation with the Government of India, RBI and SEBI have issued circulars on October 06, 2015 announcing a medium term framework for revising limits on foreign portfolio investment in Government securities. It has been decided that all limits henceforth will be fixed in rupee terms as opposed to the current system of using dollar terms.

In pursuance of the Government policy to increase the overall limit on foreign portfolio investment in Government securities, the limit is set to be increased, in phases, to reach the level of 5% of the outstanding stock of Government securities by March 2018. This will allow for an additional Rs. 1200 billion of foreign portfolio investment above the existing Rs. 1535 billion. For this financial year, the limits will be revised in two stages (on October 12, 2015 and January 01, 2016) and the overall limit pursuant to these will be at Rs. 1795 billion. There will be a separate additional limit for foreign portfolio investment in state development loans which will be introduced in phases to reach 2% of the outstanding stock of state development loans by March 2018. For this financial year, the limit will be Rs. 35 billion, effective from October 12, 2015, and Rs. 70 billion from January 01, 2016. Further, quarterly increments of all limits will be announced on a half-yearly basis. The existing requirement of investments being made with a minimum residual maturity of 3 years will continue to apply to all categories.

Lastly, it has been announced that a security-wise limit of 20% of the amount outstanding under each security will be effective prospectively. While existing investments above the 20% limit will be allowed to continue, further investment in such securities will not be permitted. These circulars are a welcome move as they provide a clear picture of the position of the Government in the years to come regarding investments by foreign portfolio investment in Government securities and provide a measure of predictability to all interested parties.