New Delhi: With foreign institutional investors preferring debt to equity in India, the Government is mulling a hike in the cap imposed on Foreign Iinstitutional Investors’s (FII) investment in the debt market at a meeting slated for later this month.
The limit on FIIs investment in corporate debt was raised to $3 billion in corporate debt from $1.5 billion and $5 billion in government securities from $3.2 billion in June.
“The last meeting was inconclusive on the issue,” official sources told PTI. A meeting of high-level committee comprising key officials of the Finance Ministry and RBI will be held this month-end.
However, before increasing the cap on FIIs, the Finance Ministry is making an assessment whether there is sufficient stocks of corporate and government papers in the market, the sources said.
If the limit is raised and there are not enough stocks, it may lead to other problems like meeting of the requirement of statutory liquidity ratio (SLR) by banks.
Banks have to mandatorily keep part of their deposits in approved government securities called SLR which is currently pegged at 25%.
The sources said there is general appetite among FIIs for Indian papers, both corporate debt and government securities.
Even after the global financial crisis, FIIs have been withdrawing money from equities market in India but are pouring money into the debt market.
There is no discernible trend of FIIs pulling out money from Indian markets. They have slightly withdrawn from equities market but increased their participation in the debt markets, the sources said.