SEBI Proposes To Ease Compliance For FPIs Investing In Government Bonds

Currently, foreign investors can invest in Indian debt through 3 routes: General, VRR, and FAR. VRR and FAR allow investments without many restrictions, such as security-wise or concentration limits.

In its consultation paper, the regulator has proposed easing registration and other compliance requirements for a new FPI (foreign portfolio investors) category called IGB-FPIs -- investing exclusively in government bonds.

Source : PTI

Markets regulator Sebi on Tuesday proposed to simplify rules and ease regulatory compliance for FPIs that invest exclusively in Indian government bonds (IGBs) via the voluntary retention route (VRR) and fully accessible route (FAR).

The move is aimed at attracting more long-term bond investors to India.

Currently, foreign investors can invest in Indian debt through three routes: General, VRR, and FAR. VRR and FAR allow investments without many restrictions, such as security-wise or concentration limits.

In its consultation paper, the regulator has proposed easing registration and other compliance requirements for a new FPI (foreign portfolio investors) category called IGB-FPIs -- investing exclusively in government bonds.

Sebi has suggested that IGB-FPIs will not need to provide investor group details, as bond investments under FAR/VRR don't have such limits.

Generally, FPIs are required to disclose group structures for investment cap monitoring.

It suggested that certain compliance requirements like investor group disclosure and investment caps will not apply to IGB-FPIs. The new category should invest only in Indian government bonds via FAR and VRR.

Moreover, clubbing rules for group investments will not apply to IGB-FPIs.

Currently, NRIs, OCIs, and resident Indians can't contribute more than 25 per cent individually or 50 per cent collectively to an FPI, and can't control it.

The regulator suggested removing these restrictions for IGB-FPIs, allowing NRIs/OCIs/RIs to invest freely in IGB-FPIs and be in control of IGB-FPIs.

Also, Sebi also proposed aligning the KYC review timelines for IGB-FPIs with those prescribed by the RBI -- 2, 8, or 10 years, depending on the risk level -- rather than the current requirement of annual or triennial reviews for FPIs.

With regard to the timeline for disclosing material changes, the regulator proposed a uniform 30-day window for all material change disclosures for IGB-FPIs. At present, FPIs are required to report key changes within seven or 30 days based on the type of change.

For the transition between regular FPIs and IGB-FPIs, Sebi proposed allowing regular FPIs to switch to IGB-FPI status if they sell all non-IGB holdings and close their trading and demat accounts.

Similarly, IGB-FPIs may transition back to regular FPIs by complying with the standard FPI regulations.

India's inclusion in major global bond indices -- JP Morgan, Bloomberg, and FTSE--is expected to bring more foreign investments.

According to Sebi data, FPI investment in FAR-eligible bonds has already risen significantly, reaching over Rs 3 lakh crore (USD 35.7 billion) by March 2025.

The Securities and Exchange Board of India (Sebi) has invited public comments on the proposals until June 3, 2025. 

(This report has been published as part of the auto-generated syndicate wire feed. Apart from the headline, no editing has been done in the copy by ABP Live.)