Circular No. IMD/FII&C/ 23 /2006

September 15, 2006


All Foreign Institutional Investors, and

 Sub: FII investments in Upper Tier II Instruments

The Reserve Bank of India in its Circular dated July 21, 2006 reviewed the guidelines governing the Innovative Perpetual Debt Instruments eligible for inclusion as Tier 1 Capital and Debt Capital Instruments qualifying for Upper Tier II Capital. As per the aforementioned Circular, investment by FIIs in Upper Tier II instruments raised in Indian Rupees shall be outside the limit for investment in corporate debt instruments, i.e., USD 1.5 billion. However, investment by FIIs in these instruments will be subject to a separate ceiling of USD 500 million.

In view of the above, the following shall be applicable with immediate effect:

1.The limit of USD 500 million will be allocated among the 100% debt and general 70:30 FIIs/ sub accounts in the following manner:

Type of FIIs 100% Debt 70:30 Total Permissible limit
Limit Allocated 390 110 500
Total 500

2.A ‘headroom’ of USD 20 million will be maintained for investments by general 70:30 FIIs/ sub accounts in Upper Tier II instruments i.e. the FIIs/ Sub Accounts are free to invest till the total investment limit reaches USD 90 million. Thereafter, the approvals for limit allocation shall be granted as per the procedure mentioned in our Circular No. IMD/FII/16/2004 dated November 2, 2004. It is to be noted that the Board reserves the right to withdraw unused allocation in case there is demand from any FII which has already exhausted the limits, in order to enable optimum use of the allocations.

3.The individual limits for investment in Upper Tier II instruments will be advised to the 100% debt FIIs/ sub accounts separately.

A copy of this circular is available at the web page “F.I.I.” on our website The custodians are requested to bring the contents of this circular to the notice of their FII clients.

Yours faithfully,

Sangeeta Uchil

Deputy General Manager

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