India raises foreign limits in govt, corporate bonds

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India has raised the ceiling on foreign institutional investment in government and corporate bonds by $5 billion each, a finance ministry official said on Thursday, to help boost foreign inflows after the existing limits were almost reached.

"The policy has been reviewed in the context of India's evolving macroeconomic situation, the need for enhancing capital flows and making available additional financial resources for India's corporate sector," Thomas Mathew, joint secretary in the finance ministry, told reporters.

The move could also help ease the pressure on the rupee, which has slumped nearly 13.5 per cent from its year-high in July due to a widening trade deficit and falling foreign equity inflows.

Investments by companies in India have shrunk after the RBI raised interest rates 13 times since early 2010, and consumer spending has dropped hurting growth.

The slowdown has dented government revenue collections and New Delhi has stepped up its borrowing, putting upward pressure on bond yields and the availability of cash for the corporate sector.

The limit on foreign institutional investor (FII) investment in government bonds has been raised to $15 billion from $10 billion, which has almost been reached, Mathew said.

The decision to hike the FII limit in the government debt along with a RBI move to buy back bonds worth up to $2 billion next week helped cool bond yields on Thursday.

At 0925 GMT, the most-traded 10-year bond yield was down 9 basis points at 8.79 per cent.

The FII ceiling in corporate bonds has been raised to $20 billion as the existing $15 billion ceiling has almost been reached, Mathew said.

Together with a $25 billion that can be invested in infrastructure bonds, the total FII limit in corporate bonds stand at $45 billion.

The Securities and Exchange Board of India, the capital markets regulator, is expected to notify the decisions in the next few days, the official said.

The government may also increase a $30 billion ceiling on overseas borrowings by companies, he said.

Companies have raised about $20 billion through external commercial borrowings between April and October, Mathew said.