SEBI Eases Rules For Foreign Investors In Government Bonds

The Securities and Exchange Board of India announced on Wednesday that it will simplify regulations for Foreign Portfolio Investors who focus solely on investing in Indian government securities. This move aims to draw more long-term bond investors to India.

Foreign investors currently access Indian debt through three main channels: the General route, the Voluntary Retention Route (VRR), and the Fully Accessible Route. The VRR and FAR routes offer fewer restrictions, such as limits on specific securities or concentration of investments.

"To improve the ease of doing business through a risk-based approach and optimal regulation, the board has approved a proposal to relax certain regulatory requirements for all current and future FPIs that invest exclusively in G-Secs," SEBI stated after its board meeting. These measures are expected to further facilitate FPI investments in G-Secs.

This decision comes as India's debt market sees growing interest through routes like VRR and FAR. The periodicity of mandatory Know Your Customer reviews for these FPIs will now align with the Reserve Bank of India's requirements, meaning they'll have less frequent reviews. Additionally, existing and prospective FPIs investing in G-Secs under the FAR will no longer need to provide investor group details.

Further, Non-resident Indians, Overseas Citizens of India, and Resident Indian Individuals will be allowed to be constituents of GS-FPIs without the restrictions applied to other FPIs, including controlling them; however, conditions related to the Liberalised Remittance Scheme and global funds with less than 50% Indian exposure will still apply.

SEBI has also set a standard 30-day window for all material change disclosures for G-Sec focused FPIs, a change from the previous requirement of reporting changes within either seven or 30 days depending on the type.

SEBI also noted that the process for identifying an FPI as a GS-FPI during onboarding, and for existing and prospective FPIs to transition to or from GS-FPI status, will be subject to conditions specified by the board.

India's upcoming inclusion in major global bond indices—JP Morgan, Bloomberg, and FTSE—is anticipated to attract even more foreign investment. SEBI data shows that FPI investment in FAR-eligible bonds has already surged, exceeding Rs 3 lakh crore or $ 35.7 billion by March 2025.

(With PTI inputs)