The much-awaited RBI measures to stem rupee's slide did not match market expectations amid rupee plunging close to 58 level

Mumbai/New Delhi: To arrest the rupee slide, the Reserve Bank of India (RBI) on Monday increased foreign institutional investors (FIIs) limit in government bonds by $5 billion to $20 billion, while allowing up to $10 billion from overseas borrowings by India Inc for refinancing rupee loan, reports PTI.

Long term investors like Sovereign Wealth Funds (SWFs), multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks would be allowed to invest in government debts up to $20 billion, RBI said in a notification.

The rupee, which breached the 57-level on 22nd June, opened in the positive zone against the dollar but soon after the RBI measures were announced it sharply fell to 57.92 levels. Similarly, the BSE benchmark Sensex, which had climbed to a seven- week high of 17,132 during the day, lost momentum and touched a low of 16,853 after RBI annoucement.

The decisions have been taken "in consultation with the government," RBI said, adding that they will widen foreign investor base for government securities (G-Secs).

"It has been decided to allow Indian companies in manufacturing and infrastructure sector and having foreign exchange earnings to avail of external commercial borrowing (ECB) for repayment of outstanding rupee loans towards capital expenditure and/or fresh rupee capital expenditure under approval route. The overall ceiling for such ECBs would be $10 billion," the central bank said.

Industry body, FICCI, however said the steps announced (by RBI) are minimal in nature. "The steps announced so far are probably minimal at this time but could lead to some inward capital flows if this is supported by stronger fundamentals. We were however hoping for a broad based set of strong actions as well as policy reforms that could have a positive bearing on the overall environment. Every delay in announcing such measures is only reducing their ultimate effectiveness and extending the weak phase of our economy," said RV Kanoria, president, FICCI.

The RBI further said the existing limit for investment by foreign institutional investors in G-Secs has been enhanced by $5 billion.

"This would take the overall limit for FII investment in G-Secs from $15 billion to $20 billion. The sub-limit of $10 billion (existing $5 billion with residual maturity of 5 years and additional limit of $5 billion) would have the residual maturity of three years," RBI said.

Also, the terms and conditions for the scheme for FII investment in infrastructure debt and the scheme for non- resident investment in Infrastructure Development Funds (IDFs) have been further rationalised in terms of lock-in period and residual maturity.

Further, the conditions for investment by individual foreign investors have been relaxed in Mutual Funds.

RBI said that qualified foreign investors (QFIs) can now invest in those mutual fund (MF) schemes that hold at least 25% of their assets in infrastructure sector under the current $3 billion sub-limit for investment in mutual funds related to infrastructure.

The liberalisation measures for capital account transactions, which have come into operations with immediate effect, besides increasing foreign fund inflows into the country are also likely to check slide of rupee against the US dollar.