Foreign investors to be allowed to invest in NBFC debt securities
New Delhi: In a move to attract more foreign funds into the Indian market, Finance Minister Nirmala Sitharaman on Friday proposed to allow foreign institutional investors (FIIs) and foreign portfolio investors (FPIs) to invest in debt securities issued by non-banking finance companies (NBFCs).
Proposing a series of reforms of the capital market while presenting her maiden Union Budget, Sitharaman also proposed merging the Non-resident Indian (NRI) portfolio route with the FPI route to increase more NRI fund flows into the country.
The government proposes to allow FII and FPI investment in debt securities issued by NBFCs, she said, adding that it will work with exchanges to allow ‘AA’ rated bonds to be used as collateral.
Allowing FIIs and FPIs to invest in debt securities issued by the NBFCs will permit availability of funds for cash-strapped NBFCs who have been facing a crisis following defaults by IL&FS last year, which made banks wary of lending to these shadow bankers.
The 2019-20 Budget states that the NRI portfolio route will now be merged with FPI for seamless investment in stock markets to increase more NRI portfolio flows into India.
Budget 2019-20 also says that the Credit Guarantee Enhancement Corporation will be set up in the current fiscal and action plan will be put in place to deepen markets for long-term bonds with specific focus on infrastructure sector.
Besides, the Finance Minister said that measures will be taken to make the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi) depositories inter-operable, which is necessary for the seamless transfer of treasury bills.
To attract more funds into the real estate and infrastructure sectors, the Budget proposes to allow FPIs and NRIs to subscribe to listed debt papers of real estate investment trusts (REITs) and infrastructure investment trusts (InvITs).
The Minister also said that trading in corporate bonds would be made user-friendly.