RBI Lifts FPI Limits on Corporate Debt Investment

Circular No. RBI/2025-26/35 FMRD.FMD.No.01/14.01.006/2025-26, Dated: 08.05.2025

The Reserve Bank of India (RBI), through its amendment to the Master Directions on ‘Non-Resident Investment in Debt Instruments, 2025’ dated January 7, 2025, has introduced a significant relaxation in norms governing foreign portfolio investment (FPI) in corporate debt securities.

1. Earlier Norms on Short-Term Investments by FPIs

Under the existing framework, FPIs were allowed to invest in corporate debt securities with a residual maturity of up to one year, subject to a cap of 30% of their total investment in such securities. This limit was to be calculated on an end-of-day basis, restricting FPIs from holding excessive short-term instruments in their debt portfolios.

2. Exceptions to the 30% Short-Term Limit

Even before the recent amendment, RBI had provided certain exemptions to the above short-term investment restriction. These included –

• Investments made prior to April 27, 2018 – If an FPI’s short-term holdings comprised solely of securities purchased on or before this date, the 30% cap did not apply.
• Investments made between July 8, 2022, and October 31, 2022 – Any investment in corporate debt securities made during this window was also exempt from the short-term investment limit, regardless of their residual maturity.

3. Concentration Limits on Investment in Corporate Debt Securities

Apart from the short-term limits, the RBI also imposed concentration thresholds for FPI investment in corporate debt instruments. As per the previous rules –

• Long-Term FPIs – Could invest up to 15% of the prevailing investment limit allocated for corporate debt securities.
• Other FPIs – Were restricted to 10% of the prevailing investment limit for such instruments.

These concentration norms aimed to prevent excessive exposure by a single FPI or group of related FPIs in the corporate debt market.

4. Key Update – Withdrawal of Short-Term and Concentration Limits

In a major move to enhance investment flexibility and attract greater foreign participation, the RBI has now withdrawn the short-term investment limit of 30% as well as the concentration limits (15%/10%) for FPI investment in corporate debt securities.

This implies –

• FPIs are now free to invest in corporate bonds of any maturity, without worrying about end-of-day short-term exposure limits.
• There is no cap on the share of investments that a long-term or regular FPI can hold in corporate debt, relative to the prevailing limit.

5. Effective Date and Regulatory Impact

These revised directions are effective immediately and are expected to –

• Simplify compliance requirements for FPIs.
• Boost liquidity and participation in the Indian corporate bond market.
• Offer greater operational flexibility to international investors managing diverse debt portfolios.

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