The Reserve Bank of India (RBI) vide its notification number RBI/2011-12/244 A.P. (DIR Series) Circular No. 42 dated November 03, 2011 has revised the terms of investment by Foreign Institutional Investors (FIIs) and the subjective conditions. The modifications stipulated in the aforesaid notification are as follows:
- FII’s can now invest in non-convertible debentures/bonds issued by with “Infrastructure Finance Companies” who are Non-Banking Financial Companies (NBFC’s) up to a limit of USD 5 Billion within the overall USD 25 Billion limit.
- The three year lock in period in respect of investments by FIIs up to USD five billion within the overall limit of USD 25 Billion stands reduced to one year.
- The five year residual maturity on an instrument purchased by an FII now refers to the original maturity date of the instrument. The lock in period will be computed from the original maturity date of the investment.
- These changes would also apply for Qualified Foreign Investors (QFI) investment in units of mutual fund debt schemes within the limit of USD three billion.
Modifications to guidelines issued on Derivatives
The Reserve Bank of India (RBI) vide its notification number RBI/2011-12/243 DBOD.No.BP.BC 44 /21.04.157/2011-12 dated November 02, 2011 has revised the terms for the investment in derivatives by companies. The banks will now need to seek approval of from the board of the company before investing in derivatives on their behalf. The finer points of the notification are as follows:
- In addition to generic derivative products market-makers can now offer structured derivative products so long as the underlying instrument is not a derivative.
- Banks will need the prior approval of the RBI before offering these products to their corporate customers
- Structured derivative products include instruments that are a combination of either cash and one or more generic derivative products or a combination of two or more generic derivatives.
- Before offering any derivative products banks have to obtain approval of the corporate via a board resolution containing the notional amount limit prescribed by the corporate for the investment in derivatives.
- It should be ensured that the Board resolution submitted by the company is signed by a person other than the persons authorised to undertake the transactions.