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RBI puts curbs on foreign ownership of some bonds

New government bonds with 14-year and 30-year tenors will no longer be fully accessible to non-resident investors, regulator says

RBI puts curbs on foreign ownership of some bonds
[Source photo: Chetan Jha/Press Insider]

India has imposed restrictions on foreign ownership of some recently issued bonds in a move that signals regulatory caution following the inclusion of Indian securities in a major global index.

Freshly issued government bonds with 14-year and 30-year tenors will no longer be fully accessible to non-resident investors, a Reserve Bank of India (RBI) statement on Monday said. The change is effective immediately.

“On a review and in consultation with the government, it has been decided to exclude all new securities of 14-year and 30-year tenors from the fully accessible route (FAR). Consequently, future issuances of government securities in these tenors shall not be available for investment under FAR,” an RBI notification said.

“Existing stocks of government Securities in 14-year and 30-year tenors already included as ‘specified securities’ under FAR shall, however, continue to be available under the FAR for investments by non-residents in the secondary market,” the notification added.

RBI’s action comes a month after JPMorgan Chase and Co. began adding government securities in its emerging market index.

The bonds will be included in the GBI-EM Global index beginning 28 June, JPMorgan Chase had said earlier, adding that 23 government bonds with a combined notional value of $330 billion met the criteria for index eligibility.

But in June this year, JPMorgan Chase said in a report that the maturities of the 27 FAR bonds eligible to join its index range between June 2027 and January 2054, with the August 2033 bond having the largest weight.

Citing its own data, Bloomberg said foreign investors have stepped up holdings of longer-dated Indian debt in recent months, potentially a bid to lock in yields before any RBI interest rate cut.

About 40% of the money is parked in FAR notes with maturities of five years or less, but regulators want demand to be concentrated in bonds with tenors of 10-years, the report added, citing unidentified officials aware of the matter.

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