RBI attempts to woo fleeing foreign investors

– Vinita Nair and Saloni Khant | corplaw@vinodkothari.com

In light of the outflow of $13.7 billion by foreign institutional investors in less than 2 months and the consequent fall in rupee, the RBI governor has issued a press release dated June 5, 2026 introducing various measures to pull in foreign capital such as slashing tax on investment in G-secs, removing restrictions thereon, enabling foreign investment in G-secs with longer tenure, raising investment limits for NRI, OCIs and PROIs in listed equity, concessional forex swap for ECB by PSUs and subsidising hedging cost for FCNR (B) deposits.

Government Securities

• FPIs, OCIs, and NRIs permitted to invest in 15, 30 and 40 year G-secs under FAR
  • RBI (Non-resident Investment in Debt Instruments) Directions, 2025 permit investment under the Fully Accessible Route (FAR) in new issuances of G-secs and sovereign green bonds having tenor of 15, 30 year and 40 years tenor in addition to the 5, 7 and 10 year tenor securities already permitted.
• Ease of investment in G-Secs for FPIs under the General Route
  • FPIs can now invest under the general route in government securities without these restrictions w.r.t. Short-term investments limits, Security-wise limit and Concentration limits:
    • Short-term investments limit: Investment in G-secs (maturity up to 1 year) were capped at 30% of the FPI’s total investment in each category.
    • Security-wise limit: Total of investments by FPI and those made through the Special Rupee Vostro Account Route in CG securities were capped at 30% of the security’s outstanding stock.
    • Concentration limit: Investment in G-secs by an FPI (with related FPIs) was capped at 15% and 10% of the prevailing investment limit of long-term and other FPIs respectively.
• Merging of ‘general’ and ‘long-term’ investment limits by FPI in G-secs
  • The limits of investment by FPIs in G-Secs, previously bifurcated in ‘general’ and ‘long-term’ investments have now been merged for better flexibility. The erstwhile limits are provided in RBI Circular dated April 6, 2026, now clubbed as:

• No capital gains tax for foreign investments in G-secs
  • An ordinance dated June 5, 2026 exempts interest earned as well as capital gains on transfer, sale or exchange of G-secs held by Foreign Institutional Investor or a Bank for International Settlements w.e.f. April 1, 2026.         

These measures are expected to increase returns for FPIs from Indian G-Secs by 15-20%^[1].

Listed Equity Investments

• Listed equity investment limits raised for NRI and OCI; Extended to all individual PROIs
  • Investments by NRIs and OCIs without SEBI registration as FPIs currently capped at 5% on individual and 10% on aggregate basis (can extend up to 24% with shareholder’s approval) now extended to all PROIs.
  • Press note by DPIIT and amendment in the FEM (NDI) Rules, 2019 expected to provide increased limits.

ECBs by PSU

• Government to provide concessional forex swap for ECB by PSUs
  • The inherent currency risk of ECBs is hedged using forex swaps. The cost of forex swaps often wipes out the advantage of foreign borrowings. This relief expects an increase in ECBs from the usual $10–12 billion to $15 billion.^[2] The operational framework is yet to be issued.

FCNR Deposits

• Government to bear full hedging cost for fresh FCNR (B) deposits till September 30, 2026
  • Fresh 3 to 5 year Foreign Currency Non-Resident (Bank) Deposits made by NRIs and PIOs will benefit from this move. Banks will be pushed to pass on these benefits to depositors and may be able to raise up to $40 billion.^[3]

Realization of export proceeds

• Timeline for realisation of export proceeds restored back to 9 months from 15 months
  • On November 13, 2025, the FEM (Export of Goods and Services) Directions were amended to increase the timeline for realisation of export proceeds including those made by specified entities such as SEZ / status holder exporter / EOUs etc. from 9 to 15 months as an EODB measure. [See the brief highlights here.] The latest amendment aims to expedite export receipts.

^[1] Source: https://www.thehindubusinessline.com/money-and-banking/govt-sops-to-boost-fpi-returns-from-gsec-by-15-20/article71065897.ece

^[2] Source: https://www.business-standard.com/economy/news/psu-ecb-borrowings-may-cross-15-billion-on-rbi-s-concessional-swap-window-126060700598_1.html

^[3] Source: https://economictimes.indiatimes.com/industry/banking/finance/banking/banks-to-be-told-to-step-up-fcnr-b-deposits/articleshow/131573654.cms?from=mdr#:~:text=Banks%20will%20now%20encourage%20more,attract%20significant%20foreign%20currency%20inflows. 

Refer to our other resources:

1. Resource Centre on FEMA
2. Resource Centre on ECB
3. SOP for FDI approval rationalised for Border- Country Investment
4. Open but Guarded Gates: Relaxations for Border-Country Investments