RBI notifies special series of G-Secs under 'fully accessible route'

The Reserve Bank of India (RBI) on Monday said it will issue certain series of government securities (G-secs) under the “fully accessible route”. These special securities will attract no foreign portfolio investor (FPI) limits until maturity and are the first step towards Indian G-Secs being listed on global bond indices as the Centre looks to attract access cheap liquidity in the overseas markets.

The RBI also raised upwards the FPI limits for corporate bonds to 15 per cent, from 9 per cent, for 2020-21. However, the overall FPI limit in G-secs of 6 per cent has not been changed as yet. “The revised limits for FPI investment in G-Secs and state development loans for 2020-21 (FY21) will be advised separately,” the RBI said. “The RBI shall notify the G-secs that shall be eligible for investment under the fully accessible route for non-resident investors. These securities will continue to be eligible for investment by residents,” the central bank said in a circular.

The ministry tweeted: “This will substantially ease access of non-residents to the Indian government securities markets and facilitate inclusion in global bond indices. This would facilitate the inflow of stable foreign investment in Indian bonds.”

The RBI did not say what percentage of the Rs 8-trillion gross borrowing for FY21 will be through the special securities, but sources said it could be anything between 15 per cent and 20 per cent. This means anything between Rs 1.2 trillion and Rs 1.6 trillion could be borrowed through these bonds without FPI restrictions.

chartThe RBI notification follows a Budget announcement by Finance Minister Nirmala Sitharaman regarding the same. “Certain specified categories of G-secs would be opened fully for non-resident investors, apart from being available to domestic investors as well,” Sitharaman had in her FY21 Budget speech.

The RBI said all new issuances of G-secs of 5-year, 10-year, and 30-year tenors from FY21 will be eligible for investment as “specified securities”.

Some of the global bond indices that could embrace Indian G-secs, if all the conditions are met, include the Bloomberg Barclays Global Aggregate Index, FTSE Russel Asia Pacific Government Bond Index, and JPMorgan Government Bond Index-Emerging Markets. These indices have conditions which favour scale and size. For example, according to the criteria of some of these indices, each issuance should be $400 million at least, and the total quantum of the bonds should be at least $5 billion.

Ministry officials have had several meetings with the RBI, as well as the administrators of the global bond indices. They have also met banks which may act as potential market makers for the bonds.

Government officials as well as bond market analysts said being part of the global bond indices would help Indian G-secs attract large funds from major global investors, including pension funds.