RBI removes rules on FIIs' investment in debt, equity | business | Hindustan Times
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RBI removes rules on FIIs' investment in debt, equity

business Updated: Oct 17, 2008 21:18 IST

The Reserve Bank today removed a FEMA regulation which binds FIIs to restrict their investment in the Indian capital market in the ratio of 70:30 between equity and debt, following market regulator SEBI's directive to this effect on Thursday.

SEBI had on Thursday decided to do away with the conditions limiting FIIs' allocation of funds between debt and equity to provide greater flexibility and investment options to overseas investors.

"Accordingly, it has been decided, to dispense with the existing provisions under FEMA regulations, restricting an FII's allocation of its total investment between equity and Debt in the ratio of 70:30," RBI said in a notification here.

SEBI had done away with the existing limit on distribution of FII investment a day after the Government doubled the cap on their investment in corporate debt to six billion dollars.

The decision came in the wake of FIIs pulling out of the Indian equity market and pumping money in the debt market.

FIIs have taken out USD 11.56 billion from equity market and bought net debt worth USD 1.8 billion since January.

However, another regulation that FIIs investing up to 100 per cent in the debt market will have to form a 100 per cent fund for this purpose and get it registered with SEBI remains, the central bank said.

So far as security receipts issued by the Asset Reconstruction Companies are concerned, the total holding of a single FII in each tranche of scheme must not exceed 10 per cent of the issue.

Besides, the total holding of all FIIs put together must not exceed 49 per cent of the paid up value of each tranche of scheme of security receipts issued by ARCs.