RBI hiked Foreign Investment Limit in Government Bonds by 5 billion dollar

In a move aimed at arresting the unrelenting fall of Indian rupee, India’s central bank the Reserve Bank of India on 25 June 2012 hiked the limit of foreign investment in government bonds by 5 billion dollar to 20 billion dollar. The bank also raised limit of external commercial borrowing (ECB) to 10 bilion dollar.

Currently, foreign institutional investors (FIIs) are allowed to invest upto 20 billion dollar in Indian corporate bonds. While the limit in government bonds is at 15 billion dollar, FIIs are barred to invest in infrastructure bonds upto 25 billion dollar. The central bank also cut down the time period for the maturity of government securities (g-secs) to three years from earlier five years.

What is External Commercial Borrowings (ECB)?

External Commercial Borrowings (ECB) refer to commercial loans [in the form of bank loans, buyers’ credit, suppliers’ credit, securitised instruments (e.g. floating rate notes and fixed rate bonds)] availed from non-resident lenders with minimum average maturity of 3 years.

What are Government bonds or Government securities?

Government bonds are the bonds issued by the Government of a country in its own currency. The bond helps the government to raise money which is used to finance various activities like building roads, hospitals, infrastructure etc. Hence, the government bonds are a kind of loan against which the government of a country receives a certain amount of money, for a certain amount of time, on a certain interest rate.