Corporate Bond Investment Limits: Changes Make Sense

On 20 July, foreign portfolio investors (FPIs) and investors in rupee denominated bonds (RDBs) got an unwelcome surprise in the form of a circular from the Securities and Exchange Board of India (SEBI) that effectively halted the subscription of corporate debt by FPIs and other foreign investors. But twin late-September moves by SEBI and the Reserve Bank of India (RBI) have restored some level of certainty for FPIs and foreign investors as well as Indian borrowers.

By way of background, a circular from SEBI on 4 August 2016 had established the limit up to which FPIs and other foreign investors could subscribe to corporate debt as ₹2.44 trillion, being roughly the rupee equivalent of US$51 billion (the then prevailing limit). SEBI's 20 July circular prescribed that when investments in corporate debt (including RDBs) reach 95% of the prescribed limit: (a) depositories would be required to halt all subscription to corporate debt; and (b) such investments could then only