The Reserve Bank of India (RBI) said it will issue certain series of government securities (G-secs) under the “fully accessible route”. These special securities will attract no foreign portfolio investor (FPI) limits until maturity and are the first step towards Indian G-Secs being listed on global bond indices as the Centre looks to attract access cheap liquidity in the overseas markets.
This separate channel called Fully Accessible Route (FAR) to enable non-residents to invest in specified Government of India dated securities with effect from April 1.The move follows the Union Budget announcement that certain specified categories of government securities would be opened fully for non-resident investors without any restrictions.
Eligible investors can invest in specified government securities without being subject to any investment ceilings . This scheme shall operate along with the two existing routes viz., the Medium Term Framework (MTF- Utkarsh 2020, the central banks’ medium term strategy framework , in line with evolving macro-economic environment) and Voluntary Retention Route (VRR- provides Foreign portfolio investors with a new channel of investment and in board terms , investment through this route will not be subject to macro-prudential and other regulatory norms)
Government Security :
A G-Sec is a tradable instrument issued by the Central Government or the State Governments.Such securities are short term (usually called treasury bills, with original maturities of less than one year- presently issued in three tenors, namely, 91 day, 182 day and 364 day) or long term (usually called Government bonds or dated securities with original maturity of one year or more).
In India, the Central Government issues both treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs).G-Secs carry practically no risk of default and, hence, are called risk-free gilt-edged instruments.
Gilt-edged securities are high-grade investment bonds offered by governments and large corporations as a means of borrowing funds.
BENEFITS OF ‘FAR’ :
This will substantially ease the access of non-residents to Indian government securities/bonds markets and facilitate inclusion in global bond indices.
Being part of the global bond indices would help Indian G-secs attract large funds from major global investors, including pension funds.This would also facilitate inflow of stable foreign investment in government bonds.