Corporate Bond Limits & Masala Bond Limits Delinked: Headroom Created For External Rupee Debt

In the current market scenario where corporate bond limits have exceeded the 95% mark, the RBI has issued a circular dated 22 September 2017 (the Circular) to remove Masala Bonds (or rupee denominated bonds issued overseas) from the purview of the corporate bond investment limit, creating headroom for corporate bond investment by Foreign Portfolio Investors (FPIs). This move comes in the wake of multiple demands from industry participants for increasing the foreign investment limit for corporate bonds after the issuance of the SEBI circular of 20 July 2017 (SEBI Circular) which put a halt on on-tap purchases of corporate bond limits by FPIs once the investment limit crossed 95% of the allotted limit. Post the 95% mark, the balance limits had to be purchased in an auction of the limits conducted periodically in accordance with the mechanism stipulated under the SEBI Circular. The SEBI Circular had also suspended the issuance of Masala Bonds until foreign holdings of