* Move aims to boost dollar inflows, but fails to cheer
* Govt allows foreign individuals to buy up to $1 bln corp
* Rupee down 12 pct in 3 months
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By Arup Roychoudhury and Archana Narayanan
NEW DELHI/MUMBAI, May 29 India will allow
foreign retail investors to buy local corporate bonds for the
first time in its latest move to bolster capital inflows and
support the shaky rupee, though the action was seen as too
limited to boost the local currency.
Analysts said the $1 billion cap on investment for overseas
individuals in local corporate bonds was too small, while the
government's expectation that it will take six to 18 months for
those flows to come in would delay any immediate impact.
"While the foreign retail investor limit increase is a
positive at the margin ... it is not a game-changer," said Kumar
Rachapudi, fixed-income strategist at Barclays Capital in
"$1 billion is not a big amount in this environment and
anyways this will take a lot time to come in," he said.
The rupee dropped on Tuesday, snapping a three-day
rally, with markets reacting more to strong dollar demand from
The government gave detailed guidelines allowing qualified
foreign investors (QFIs) to buy corporate debt. While the
proposal had been announced in the budget in March, New Delhi
had not yet provided details on the proposal, including the
Thomas Mathew, head of the capital markets division in the
finance ministry, said the flows from foreign investors will be
more stable than existing institutional flows.
"We feel this will reduce volatility," he told reporters
after announcing the measures.
The $1 billion limit is in addition to the existing $20
billion limit for foreign institutional investors (FIIs) in
Foreign individuals still cannot directly invest in Indian
government bonds. India allowed foreign individuals direct
access to its stock markets in January.
Separately, a senior official told Reuters that the Reserve
Bank of India has proposed to the finance ministry some measures
that are also intended to boost inflows.
The RBI is suggesting a two-prong approach, said the source,
who declined to be identified because the proposals have not not
The first is to rejig the investment limits in Indian bonds .
T he country a llows f oreign investors to buy up to $60 billion in
its debt markets, of which $15 billion can be invested in the
more popular government bonds and $45 billion into corporate an d
infrastructure deb t.
There are sub-categories within these two divisions, with
their own individual investment limits. The RBI hopes to attract
more inflows by proposing th e finance ministry raise t he quotas
of popular investments like som e types of go vernment debt and
reduced l im its for less popular products.
The RBI is also suggesting changing the so-called "lock-in"
periods for some of its debt investments. I ndia currently
mandates a minimum holding period for some of its debt.
For example, the government will allow foreign investors to
buy only securities with maturities of five years or longer for
some of its federal debt, effectively shutting them out from
investing in the more popular shorter-dated notes.
The action from the government, and the proposals from teh
central bank for further action, come as the rupee, which fell
to a lifetime low of 56.40 to the dollar last week, has been the
worst performing major Asian currency since February.
Global risk aversion due to worries over the euro zone
crisis, as well and India's slowing growth and wide fiscal and
current account deficits, have turned away investors.
Foreign investors have bought a net of $177.7 million in
debt and equity in May, far below the $7.2 billion in net
inflows in February.
(Writing by Suvashree Dey Choudhury; Editing by Tony Munroe,