RBI elevates foreign investment limit in govt bonds

In a move targeted at preventing the continuous decline of Rupee, the Reserve Bank of India increased the limit of foreign investment in government bonds by $ 5 billion to $ 20 billion. The regulator also elevated limit of external commercial borrowing (ECB) to $ 10 bilion.

Currently, foreign institutional investors (FIIs) are permitted to invest upto $ 20 billion in Indian corporate bonds. While the limit in government bonds is at $ 15 billion, FIIs are not allowed to invest in infrastructure bonds upto $ 25 billion. The RBI also curtailed the time period for the maturity of government securities (g-secs) to 3 years from earlier 5 years.

External Commercial Borrowings

External Commercial Borrowings (ECB) denote commercial loans in the form of bank loans, buyers’ credit, suppliers’ credit, securitized instruments (e.g. floating rate notes and fixed rate bonds) obtained from non-resident lenders with minimum average maturity of three years.

Govt bonds or Govt securities

These are the bonds issued by the Govt of a country in its own currency. The bond assists the government to generate money which is used to support various programmes and activities like constructing roads, hospitals, infrastructure etc. Hence, the govt bonds are a sort of loan against which the govt of a country gets a certain amount of money, for a definite amount of time, on a definite interest rate.

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