The Reserve Bank, on 6^th October, 2015, has enhanced the limit for investment by FPIs in Government Securities vide A.P. (DIR Series) Circular No 19.

Background

In terms of Schedule 5 of the Foreign Exchange Management (Transfer or Issue of Securities by a Person Resident Outside India) Regulations, 2000, FPIs havebeen permitted to make investment in Government Securities up to prescribed limits.

The investment limits for FPIs in Government securities were last increased to USD 30 billion vide A.P. (DIR Series) Circular No. 111; dated 12th June, 2013. Subsequently, the allocation of limits between long term investors* and other FPIs wasmodified vide A.P. (DIR Series) Circular No. 99; dated 29^th January, 2014 and a sub-limit of USD 10 billion was made availablefor investment in dated Government Securities for long term investors.

*Long terms investor means FPIs registered with SEBI as Sovereign Wealth Funds (SWFs), Multilateral Agencies, Endowment Funds, Insurance Funds, PensionFunds and Foreign Central Banks.

Further, the requirement of investment by FPIs in securities with minimum residual maturity of three years was put in place vide A.P. (DIR Series) Circular No. 13; dated 23rd July, 2014.

Furthermore, the Reserve Bank has, vide the fourth bi-monthly policy statement for the year 2015-16 issued on 29^th September, 2015, announced aMedium Term Framework for FPI limits in Government Securities to facilitate a more predictable regime.

Amendment vide Circular No. 19; dated 6^th October, 2015

For the current financial year, the limits of investment by FPIs in Government Securities have been enhanced vide A. P. (DIR Series) Circular No. 19; dated6^th October, 2015, in two tranches from 12^th October, 2015 and 1^st January, 2016 respectively as under:

(INR in Billions)

Note: It is to be noted that the above limits shall be applicable only for the current financial year i.e. till 31^st March, 2016.

Besides enhancing the investment limits for FPIs for investment in Government Securities, the said Circular No. 19 also provides that:

• The security-wise limit for FPI investments will be monitored on a day-end basis and those Central Government securities in which aggregate investment by
• FPIs exceeds the prescribed threshold of 20% will be put in a negative investment list.
• No fresh investments by FPIs in these securities will be permitted till they are removed from the negative list.
• There will be no security-wise limit for State Development Loans.
• All other existing conditions, including investment of coupons being permitted outside the limits and investments being restricted to securities with a minimum residual maturity of three years, will continue to apply.
• Further operational guidelines relating to allocation and monitoring of limits will be issued by the Securities and Exchange Board of India.

LLPs with FDI to file FLAs

The Reserve Bank has, on 30th September, 2015, issued notification No. FEMA.351 /2015 RB; Foreign Exchange Management (Transfer or Issue of Security by aPerson Resident outside India) (Seventh Amendment) Regulations, 2015 thereby, amending Para 7 of Schedule 9 of the Foreign Exchange Management (Transfer orIssue of Securities by a Person Resident outside India) Regulations, 2000 (‘FDI Regulations’) with immediate effect.

A new clause (iv) has been inserted under Para 7 of Schedule 9 of the FDI Regulations, in terms of which, all Limited Liability Partnerships (‘ LLPs’) which have received foreign direct investment in the previous year(s) including the current year shall submit Annual Return onForeign Liabilities and Assets (‘FLA’) to the Reserve Bank on or before the 15th day of July of each year. Accordingly, for the financialyear 2015-16 and onwards, all LLPs with any foreign direct investment shall file FLA with the RBI on or before 15^th July, 2016.