Finance Ministry relaxed Norms for Foreign Institutional Investments in Infrastructure Space

The finance ministry on 12 September 2011 relaxed the norms for foreign institutional investments (FII) in the infrastructure space by reducing the residual maturity and lock-in periods for investments in listed and unlisted bonds.

As per the new norms, FIIs were allowed to invest up to $5 billion in long-term infrastructure bonds having an initial maturity of five years and a residual maturity of one year compared to five years residual maturity before. FIIs were permitted to invest a maximum of $17 billion in long-term infrastructure bonds of an equivalent initial maturity but with a residual maturity period of three years compared to five years before. While the lock-in period for the $5 billion investment window was cut down from three years to one year, it will remain three years for the $17 billion investment.

The finance ministry had created a USD 3 billion window 9 August  2011 from the overall USD 25 billion limit. Qualified foreign investors (QFIs) were permitted to subscribe to debt schemes pertaining to infrastructure sector. $3 billion will continue to remain open to qualified foreign investors (QFIs) for investing in mutual fund debt schemes that invest in infrastructure sector.

The government had in May 2011 raised the FII investment limit to $25 billion for investments in listed and unlisted bonds from $5 billion before. The maturity period for these investments had been set at a minimum of five years and the lock-in period for three years. The scheme had been conceived to open new channels of funding for the infrastructure sector while deepening the corporate bond market. However the response to the scheme was founf to be tipid. The above changes were therefore introduced after consulting the Reserve Bank of India and the Securities Exchange Board of India (SEBI).

The new norms are expected to kick-start FII flows into the long-term corporate bonds and facilitate funding of infrastructure projects. Despite the $25 billion ceiling, only $109 million entered the market through this route as on 31 August 2011.