Skip to main content

RBI Proposes To Expand The Investment Arms For FPIs: Article by Archana Khosla of Vertices Partners

Following the Union Budget 2016-17, RBI plans to expand the investment ambit for FPIs by allowing them to put capital in unlisted debt securities as well as in securitized debt instruments

In a move to accelerate the country's corporate debt market and to attract infusion of global funds into capital markets, the Reserve Bank of India (RBI) has recently proposed to allow Foreign Portfolio Investors (FPIs) to invest in unlisted debt securities and securitised debt instruments.

As per extant rules of Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000, FPIs are qualified to invest only in listed or to-be-listed debt securities. Investment in unlisted debt securities is permitted only in case of companies engaged in the infrastructure sector. Also, at present, Investment by FPIs in securitised debt instruments is forbidden.

In this regard, on 29th February 2016, the Finance Minister of India, Mr. Arun Jaitly had presented the Union Budget 2016-17, wherein, inter alia, he had discussed the measures for deepening of Corporate Bond Market. Therein it was announced that "Investment basket of foreign portfolio investors will be expanded to include unlisted debt securities and pass through securities issued by securitisation SPVs."

Following the Union Budget 2016-17, RBI plans to expand the investment ambit for FPIs by allowing them to put capital in unlisted debt securities as well as in securitized debt instruments. Accordingly, RBI has released a draft circular elucidating the proposed directives. 

As per the proposed directive, FPIs can invest in the primary issues of non-convertible debentures/bonds by a public company issued in demat form. However, the said relaxation is fastened with an admonition that borrowing companies cannot employ such bond proceeds for real estate activities, purchase of land, investing in capital market or on-lending to other entities. 

The custodian banks of FPIs shall warrant compliance with this condition based on an undertaking from the issuing company. 

The proposed directives also permit FPIs to invest in select cluster of debt instruments passed on to other borrowers, known as 'Securitised Debt Instruments' in market parlance. According to the proposal, FPIs can invest in any certificate or instrument issued by a special purpose vehicle (SPV) set up for securitisation of asset/s where banks, financial institutions or non-banking finance companies are originators; and any certificate or instrument issued and listed in terms of the SEBI 'Regulations on Public Offer and Listing of Securitised Debt Instruments, 2008'.

The said proposal, if implemented, is expected to aid in the development of corporate bond market and to pull more foreign funds into capital markets.

Archana Khosla is founder partner, Vertices Partners

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house

Venture Intelligence is India's longest serving provider of data and analysis on Private Company Financials, Transactions (private equity, venture capital and M&A) & their Valuations in India.

Popular posts from this blog

VC Interview: Shailendra Singh of Sequoia Capital India

In a recent interview to Venture Intelligence, Shailendra Singh discussed some of the firm’s newer investments in the early stage segment including in the online payments space, the progress at a few existing portfolio companies and the active role the firm is playing in helping its portfolio companies scale and succeed in India and globally. Prior to joining the firm in 2006, Singh was a strategy consultant at Bain & Company in New York and before that, an entrepreneur in the digital media industry.

Venture Intelligence: How does Sequoia go about identifying potential early stage investments in India? Is there anything different you are doing today than, say, a couple of years back?

Shailendra Singh: There is a lot more focus on technology investing and early stage investing. In general, as you might remember a few years ago, we were doing primarily growth investing but in the past 18-odd months, we have had a very strong focus on early stage and that’s continuing. In terms of how…

PE investments in 2018 crosses $33-B to set new all-time high

Big Ticket investments in consumer apps Swiggy & Byju’s dominates year-end activity, even as investments in Core Sectors slow down
Private Equity (PE) investments in India rose to their highest ever figure of $33.1 billion in 2018 (across 720 transactions), according to data from Venture Intelligence (, a research service focused on private company financials, transactions and their valuations. While PE investments have already surpassed the previous high - $24.3 Billion across 734 deals in 2017 - in the first nine months of 2018, the mega investments in Consumer Internet & Mobile startups such as Swiggy and Byjus towards the year-end, helped the 2018 total vault by 36% year-on-year. (Note: These figures include Venture Capital investments, but exclude PE investments in Real Estate.) The year witnessed 81 PE investments worth $100 million or more (accounting for 77% of the total investment value during the period), compared to 47 such transac…

ChrysCapital and Sequoia Capital India grab two awards at APEX’19 PE-VC Awards

Mumbai, India, Feb 27, 2019: ChrysCapital and Sequoia Capital bagged two awards each as part of the “Awards for Private Equity Excellence” (APEX)event organized by Venture Intelligence. 

ChrysCapital bagged the Private Equity Fund Raise of 2018 Award (Closed $850 M Fund VIII within 4 months of launch) and the Private Equity Investor of 2018 Award (for its Exits from LiquidHub with 4x in dollar terms (within 4 years of its $53-M investment), AU Small Finance Bank with 11.5x return,  Torrent Pharma with 2.95x, City Union Bank with 2.83x, L&T Infotech with 2.56x)

Sequoia Capital India won the Early Stage VCInvestor(the firm registered 10x+ exits in Byjus Classes and SCIOInspire) and VC Fund Raise of 2018 (the firm closed an almost $700-M Fund VI).

Award Winners at APEX'19 PE-VC Awards

The event opened with a Fireside Chat with Kiran Reddy, CEO of SPI Group interviewed by his long time friend and colleague Vineeth Vijayraghavan.

Snapshots of the Awards Ceremony: (L-R) Gopal Srinivasan, …