The Reserve Bank of India, over time, will expand the limits for foreign investment in sovereign bonds and it has a schedule for such expansion, according to Governor Raghuram Rajan.

The present limit for investment by SEBI-registered Foreign Institutional Investors, Qualified Foreign Investors and long-term investors and Registered Foreign Portfolio Investor in Government Securities is $30 billion.

While Rajan did not specify the new limit he said that the schedule for the expansion in foreign investment limit in sovereign bonds will be consistent with the country’s ability to absorb capital inflows. A SEBI-registered FII can purchase, on repatriation basis, dated Government securities, treasury bills, listed non-convertible debentures/bonds issued by an Indian company and units of domestic mutual funds either directly from the issuer of such securities or  in any manner as per the approved market practice. When the analyst pointed out that a corporate bond by a Government-owned entity got placed almost 3 basis points above government securities last week, the Governor said “the reason the spreads are narrow admittedly is because they are being treated as quasi sovereigns and that suggests there is an unfulfilled demand for sovereign bonds out there.”

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