RBI Relaxed FPI Norms on Corporate Bonds to Boost Foreign Inflows

Current Context: The Reserve Bank of India (RBI) relaxed Foreign Portfolio Investor (FPI) norms on corporate bonds on May 8, 2025, aiming to boost foreign inflows and deepen India’s bond market.

Key Regulatory Changes:

• Short-Term Investment Limit Removed
• FPIs were earlier restricted to investing only 30% of their corporate bond holdings in securities with less than one year maturity.
• This limit is now removed, allowing FPIs to freely invest in shorter-duration corporate bonds.
• Concentration Limit Withdrawn
• Previously, FPIs (including related entities) could invest only up to 15% of the prevailing corporate bond investment limit.
• This restriction is eliminated, giving FPIs greater investment flexibility across corporate debt.
• Immediate Implementation
• The revised norms took effect immediately from May 8, 2025.
• FPIs can now diversify holdings without regulatory constraints.

Question:

Q.1 What regulatory change did the RBI implement regarding concentration limits for Foreign Portfolio Investor (FPI)’s in corporate bonds?
a) Increased the limit from 15% to 20%
b) Reduced the limit to 10%
c) Introduced a sector-specific cap instead of a general cap
d) Removed the 15% concentration limit entirely

Answer: d) Earlier, FPIs (including related entities) could invest up to 15% of the overall corporate bond investment limit. This cap has now been removed to enhance investment flexibility.