Policy Relating to FII Investments in Government Securities and Long-Term Infrastructure Bonds Rationalized;
New Scheme for ECB Borrowings Introduced
The policies relating to FII Investments in Government Securities, Corporate Bonds, Long-Term Infra Bonds and ECB of Indian Companies and QFI have been reviewed and the following changes have been made therein.
A new scheme under ECB:
a. HLC-ECB has decided to add a new scheme for External Commercial Borrowings (ECB borrowings). Indian companies can now avail of ECBs for repayment of Rupee loan(s) availed of from the domestic banking system and/or for fresh Rupee capital expenditure, under the approval route, subject to satisfying the following conditions:
Rationalization in the Scheme of FIIs investment in Long-term Infrastructure Bonds
a. At present, FII investments in long term infra-bonds have a ceiling of US$25 billion. Out of the US$25 billion, the following are the sub- categorization:
1. US$10 billion investment in IDF.
ii. US$5 billion for FII investments in long term infra bonds with a residual maturity of one year and subject to a lock-in of similar period.
iii. US$3 billion available for QFI investments in mutual fund debt
scheme that also invest in schemes of infrastructure companies.
iv. The remaining of the total ceiling (US$7 billion) is available in FII investments in long term infra bonds that have residual maturity of three years and is also subject to a lock-in period of three years.
b. The above scheme is being modified as under:
i. Of the US$7 billion available in FII investments which is currently subject to a three year lock-in and three years residual maturity would now have one year lock-in and at least 15 months residual maturity at the time of first purchase by an FII.
ii. The residual maturity of the bonds under the US$5 billion ceiling would now be at least 15 months at the time of first purchase and the lock-in period would continue to be one year.
iii. The lock-in for IDF investment would be reduced to one year from the present three years subject to the condition that the residual maturity at the time of first purchase is at least 15 months.
iv. As regards the USD 3 billion limit for QFI investment in MF debt schemes, it has been decided that QFIs can invest in those MF debt schemes that hold at least 25% of their assets (either in debt or equity or in both) in the infrastructure sector.
The withholding tax would be liberalized as announced in the 2012-13 Budget.
Department of Revenue (DoR), RBI and SEBI will issue necessary circulars to give effect to the above changes/policies.