More changes from the RBI: Good news for bond market

By Sawant Singh and Aditya Bhargava, Phoenix Legal
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In line with its (now) prevailing approach of providing a mix of principle-based and prescriptive regulations, which also take into account market feedback and market conditions, the Reserve Bank of India (RBI) via a circular on 13 April introduced changes to the framework on issuance of rupee denominated bonds. These changes are both procedural and substantive and, similar to previous such efforts, are intended to further ease doing business in India.

Sawant Singh
Sawant Singh

The RBI announced in its monetary policy statement of 29 September 2015 that limits for foreign investment in corporate bonds would be fixed in rupees instead of US dollars. The limit has now been fixed at ₹2,443.23 billion. The aggregate of all rupee denominated bonds issued to foreign investors and all debt securities issued to foreign portfolio investors (FPIs) has to be within this limit.

While relatively low key, this procedural change provides much needed administrative clarity in that it is now simpler for issuers, regulators and market watchers (such as rating agencies and industry statistics compilers) to track issuances of bonds to foreign investors. The earlier fixing of limits in dollars created some confusion on the manner of computation and the date of determination of conversion of dollars into rupees. The limit for individual issuers has been fixed at ₹50 billion per financial year (instead of US$750 million earlier). Any issuer proposing to issue bonds beyond this limit in any financial year can do so with prior RBI approval.

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Sawant Singh is a partner and Aditya Bhargava is a principal associate at the Mumbai office of Phoenix Legal.

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