Foreign Fund Managers In India Can Hold More Government Debt

July 30th, 2014 by James

India on July 24 allowed foreign fund managers to hold more government bonds. The country however stipulated that they in future will not be able to hold debt of less than three years.

Foreign Fund Managers In India Can Hold More Government Debt

India permitted foreign institutional investors to hold a combined $30 billion in India government debt at any one time, comprising $20 billion for all foreign investors and $10 billion for long-term investors such as multilateral agencies, foreign central banks and pension, sovereign wealth funds, insurance and endowment funds.

On July 24, the country announced that the $20 billion limit will be raised to $25 billion but debt bought after the rule comes into force will have to be of at least three years. In the past, foreign investors were allowed to buy government debt of more than one year. Under the new rule announced by the Reserve Bank of India, the additional $10 billion of debt earmarked only for sovereign wealth funds, multilateral agencies, foreign central banks and pension, insurance and endowment funds – but not fund managers – will be reduced to $5 billion.

The central bank said the overall debt held by foreign institutional investment (FII) as a result will stay at $30 billion.

“I think a reasonable amount of money will flow in,” said Ashish Vaidya, executive director and head of trading and asset liability management at DBS Bank in Mumbai.

The country is expecting that its new business-friendly Prime Minister Narendra Modi will give a boost to the country by implementing faster reforms. Foreign funds have bought a net $11.95 billion in equity and $12.73 billion in debt so far this year.

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