RBI permitted Foreign Portfolio Investors to buy Defaulted Bonds

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Who: FPI to buy Defaulted Bonds
What: Permitted by RBI
When: 26 November 2015

The Reserve Bank of India (RBI) on 26 November 2015 permitted the Foreign Portfolio Investors (FPI) to buy fully or partly defaulted bonds in the repayment of principal on maturity or principal installment in the case of amortising bond.

The permission was given as part of the drive to promote investments by FPIs in corporate bonds.

As part of it following changes were made to Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000:
• The revised maturity period of such NCDs/bonds that are restructured based on negotiations with the issuing Indian company should be three years or more.
• The FPI that proposes to acquire such NCDs/bonds under default should disclose to the Debenture Trustees the terms of their offer to the existing debenture holders from whom they are acquiring.
• Such investment should be within the overall limit prescribed for corporate debt from time to time (currently 2443.23 billion rupees).
• All other existing conditions for investment by FPIs in the debt market remain unchanged.

The RBI granted the permission to the FPIs under sections 10(4) and 11(1) of the Foreign Exchange Management Act, 1999.