IGB‑FPI Relaxations – SEBI Proposes Lighter Norms

Consultation Paper Dated: 13.05.2025

1. Introduction

The Securities and Exchange Board of India (SEBI) has circulated a Consultation Paper on May, 2025 that seeks public feedback on a set of relaxations aimed exclusively at foreign portfolio investors (FPIs) that invest only in Indian Government Bonds (IGBs). The move forms part of a broader effort to deepen India’s sovereign-bond market and streamline entry barriers for long-term, low-risk investors.

2. Background – Why a Separate Regime for IGB-Focused FPIs?

IGB-centric FPIs tend to be pension funds, sovereign wealth funds and central-bank–linked vehicles whose mandates confine them to investment-grade government debt. Because such investors pose minimal market-manipulation or round-tripping risk, policymakers have long considered a lighter compliance framework appropriate. SEBI’s current paper crystallises that intent into concrete proposals.

3. Snapshot of the Consultation Paper

The paper outlines six principal relaxations and invites comments from market participants until 3 June 2025. Each proposal, summarised below, is accompanied by SEBI’s rationale and areas where feedback is specifically solicited.

4. Proposed Compliance Relaxations for IGB-FPIs

4.1 Aligning KYC Review Periodicity with RBI Timelines

SEBI proposes that the periodic KYC review for IGB-FPIs mirror the review cycle that the Reserve Bank of India (RBI) already prescribes for its own regulated entities.

• What changes? – Intermediaries would no longer follow the more frequent FPI-specific KYC schedule and would instead adopt the RBI calendar (currently once every three years for low-risk entities).
• Why it matters – This brings consistency, reduces administrative duplication, and lowers compliance costs for bond-only investors.

4.2 Exemption from Reporting “Investor Group” Details

Under the current regime, FPIs must disclose information that helps identify whether seemingly independent funds belong to a common investor group. SEBI now proposes to waive this requirement for IGB-FPIs.

• Rationale – Given that IGB investments are confined to the primary and secondary sovereign debt market, the systemic-risk concerns addressed by investor-group disclosures are less acute.

4.3 Liberalisation of NRI/OCI/RI Contributions to the FPI Corpus

The paper suggests removing the existing cap on aggregate contributions from non-resident Indians (NRIs), Overseas Citizens of India (OCIs) and resident Indians (RIs) to an IGB-FPI’s corpus.

• Current rule – Money from these categories must not exceed 50 % of the fund’s corpus unless specific conditions are met.
• Proposed rule – No quantitative limit, provided the FPI invests solely in IGBs.
• Expected impact – Enables Indian diaspora and resident investors to channel surplus capital into a low-risk vehicle without triggering re-classification or extra compliance.

4.4 Allowing NRI/OCI/RI Control of IGB-Focused FPIs

Alongside contribution liberalisation, SEBI would also permit NRIs, OCIs or RIs to assume control or majority ownership of an IGB-FPI—something the mainstream FPI rules currently restrict.

• Compliance safeguard – The relaxation is ring-fenced; the entity must remain a pure IGB investor to retain this benefit.

4.5 Relaxed Timelines for Disclosure of Material Changes

SEBI “agrees in principle” to longer windows for disclosing material changes impacting the FPI (for example, change in beneficial ownership or control).

• Proposed window

1. 1. Type I changes – (those not affecting registration eligibility) – 30 days to intimate and submit documents.
   2. Type II changes – (those that may affect eligibility) – same 30-day period.

• Comparison – This doubles the present 15-day window, reflecting the lower risk profile of bond-only investors.

4.6 Harmonised 30-Day Intimation + Documentation Deadline

SEBI endorses a unified 30-day deadline—covering both notification and supporting documents—for all material changes, eliminating the current two-step process where intimation and document submission are staggered.

5. Stakeholder Feedback Window

SEBI invites written comments, data-backed suggestions, and impact assessments by Tuesday, 3 June 2025. Submissions may be emailed to [consultation@sebi.gov.in] (as per standard SEBI format) or sent via the online feedback portal.

6. Potential Market Impact

• Deeper G-sec Demand – Easing entry norms is expected to attract new global and diaspora investors, broadening the buyer base for government securities.
• Lower Compliance Overheads – Custodians and designated depository participants (DDPs) would face reduced documentation burdens, translating into lower fees for investors.
• Regulatory Clarity – By codifying a separate path for IGB-FPIs, SEBI provides certainty that may encourage long-term strategic allocations.

7. Conclusion

The consultation marks a decisive step toward fine-tuning India’s FPI ecosystem for specialised investors in sovereign debt. Market intermediaries, FPIs and industry bodies should analyse the operational implications and respond before the 3 June 2025 deadline to help shape a pragmatic, growth-friendly regime.

Click Here To Read The Full Updates