Tag Archive for: FPIs

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

– Updated as on June 20, 2026.

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

• Schedule III of FEMA (NDI) Rules amended to permit PROIs to invest in listed equity investment limits
  • FEM (Non-debt Instruments) Rules, 2019 amended w.e.f. June 12, 2026 and FEM (Mode of Payment and Reporting of Non-Debt Instruments) Regulations, 2019 amended w.e.f. June 13, 2026. (Read our article here: MoF permits foreign individuals to buy/ sell listed equity)

ECBs by PSU and OFCBs

• Government provides concessional forex swap for ECB by PSUs and OFCBs
  • 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 framework was notified vide RBI circular dated June 8, 2026.
  • Applicability of swap facility:
    • For ECBs with minimum maturity of 3 years;
    • For undrawn portion of existing ECBs;
    • Not available for ECBs with embedded options or raised for refinancing / repayment of existing ECBs;
    • OFCBs^[3] raised by AD Cat-I Banks with minimum maturity of 3 years.
  • Features of swap facility:
    • Facility for ECBs drawdown/ OFCB flows received from June 8 to December 31, 2026 and remains open till January 15, 2027;
    • Facility available in USD only for ECB raised in any currency;
    • Maximum tenure of swap as per maturity schedule of ECB/ OCFB upto maximum 5 years;
    • Swap available at a fixed rate of 1.5 per cent per annum compounded semi-annually; 

FCNR Deposits

• Government to bear full hedging cost of AD Cat-I Banks 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 may be able to raise up to $40 billion.^[4]
  • The RBI Circular dated June 8, 2026 makes the framework immediately effective:
    • Facility for deposits mobilised from June 8 to September 30, 2026 and remains open till October 16, 2026;
    • Banks free to price deposits but overall ceiling as per the RBI’s guidelines. W.e.f. June 17, 2026 to September 30, 2026, RBI withdraws interest rate ceiling on these deposits (previously Overnight Alternative Reference Rate for the respective currency/ Swap plus 350 basis points) including those renewed on maturity. The rationale is to empower banks to pass the benefits of the swap facility to the depositors.
    • Tenor of swap in line with tenor of deposit;
    • Minimum lock-in period of 1 year for deposits, thereafter as per Bank’s policy;
    • Swaps once availed cannot be cancelled;
    • Facility available only once a week for FCNR(B) deposits mobilised in USD in previous week and pending to be covered under facility;
    • Swap facility available in US Dollars only.
• RBI exempts^[5] such FCNR (B) Deposits from CRR and SLR requirements from June 8 to September 30, 2026.
• Additionally, RBI announced a similar withdrawal w.e.f. June 17, 2026 to September 30, 2026 for ceilings on interest rates for Rupee Deposits of Non-Residents i.e. NRE deposits with a tenor of at least 3 years including deposits renewed on maturity.         

RBI provides liberty to exclude the swap positions under the above facilities related to FCNR (B) deposits, ECBs and OFCBs from the limit of USD 100 million under RBI Circular dated March 27, 2026. Refer to RBI’s FAQs on the swap facilities here.

Reporting of ECBs, OFCBs and FNCR Deposits

• W.e.f. June 22, 2026, AD Cat-I Banks to report data for ECBs, FCNR Deposits and OFCBs covered under RBI’s swap facility.
• Reporting to be done on a daily basis by 6 pm.
• For first reporting on June 22, 2026, data from June 8, 2026 till June 19, 2026 to be submitted.

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.

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^[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] Overseas Foreign Currency Borrowings

^[4] 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. 

^[5] Hyperlinked to amendment to Directions for Commercial Banks. Similar amendments to CRR and SLR Directions for Regional Rural Banks, Rural Co-operative Banks, Urban Co-operative Banks and Small Finance Banks.

^[6] previously Overnight Alternative Reference Rate for the respective currency/ Swap plus 350 basis points

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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