The market regulator plans to ease guidelines for overseas portfolio buyers (FPIs) that make investments solely in Indian authorities bonds because it seeks to attract extra inflows after India’s inclusion in world bond indices.
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The Securities and Change Board of India (Sebi) has proposed simpler registration and compliance for such FPIs, in response to a session paper launched on Tuesday.
The transfer is aimed toward enhancing the convenience of doing enterprise and attracting extra secure, long-term capital into sovereign debt. India has been included JPMorgan World Bond Index and Bloomberg Rising Market Bond Index, and can be added to FTSE Russell Rising Markets Authorities this 12 months. That is anticipated to drive billions of {dollars} in passive flows into authorities securities.
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FPI funding in bonds eligible below the absolutely accessible route (FAR) crossed ₹3 trillion as of March 2025, an almost 10-fold bounce from 2021 ranges, Sebi highlighted.
The Reserve Financial institution of India (RBI) has stored the overall restrict for overseas funding in authorities bonds at ₹2.79 trillion for April–September and ₹2.89 trillion for October–March. This means that FAR investments have already exceeded 100% of the overall restrict for the primary half of FY26.
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To additional ease such investments, Sebi determined to simplify the registration and compliance course of for buyers focusing solely on authorities bonds by means of voluntary retention route (VRR) and FAR.
VRR permits solely FPIs to put money into authorities and company bonds with a minimal three-year lock-in and sure regulatory relaxations, whereas FAR permits all non-resident buyers to put money into specified authorities securities with none funding limits or lock-in necessities.
For FPIs solely investing in authorities bonds (IGB-FPIs), lots of the Sebi FPI rules, together with fairness funding limits and extra disclosure necessities, don’t apply to them.
Better freedom
Sebi’s transfer to ease guidelines follows the RBI’s 8 Might determination to permit overseas buyers higher freedom to purchase Indian company bonds, giving them an opportunity to buy extra short-term debt.
In its session paper, Sebi proposed to align KYC norms for FPIs solely investing in authorities bonds with RBI guidelines, requiring compliance each 2, 8, or 10 years, relying on the danger profile, as a substitute of the present one- or three-year cycle.
Since such FPIs can solely put money into sovereign bonds, the market regulator has proposed exempting them from disclosing investor group linkages, that are used to watch funding focus limits in fairness and company debt.
At present, non-resident Indians (NRIs), abroad residents of India (OCIs) and resident people can’t contribute greater than 25% individually or 50% collectively to the corpus of an FPI, and they don’t seem to be allowed to regulate it.
Sebi has now proposed scrapping this restriction, which might align with the FAR route, the place NRIs and OCIs can already put money into authorities bonds with out limits. Nevertheless, resident people should nonetheless make investments by means of the Liberalised Remittance Scheme (LRS) and in world funds with lower than 50% Indian publicity.
Authorities bonds-focused FPIs would get a uniform 30-day window to reveal any materials modifications of their construction or key data in contrast with the seven- or 30-day timelines relevant at the moment.
Sebi has additionally proposed a mechanism for normal FPIs to transform into IGB-FPIs (and vice versa) with applicable declarations and after divesting from non-government bond holdings.
The regulator has invited public feedback on the paper till 3 June.
