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RBI Liberalises FPI Investment Framework for Government Securities

On 05 June 2026, the Reserve Bank of India (RBI) issued A.P. (DIR Series) Circular No. 11 introducing significant amendments to the regulatory framework governing Foreign Portfolio Investor (FPI) investments in Government Securities as part of the recent government overhaul of G-Secs. The amendments remove several longstanding investment restrictions under the General Route, consolidate investment limits and expand the universe of securities eligible under the Fully Accessible Route (FAR).

The reforms come at a time when India is seeking to deepen its sovereign debt market and encourage greater participation by global institutional investors. According to Government data, FPIs held Government Securities worth approximately ₹3.75 lakh crore as of 12 May 2026, representing only 3.34% of the outstanding stock of Government Securities. Notably, nearly ₹3.21 lakh crore of these investments were made through the FAR route, indicating a clear preference among foreign investors for less restrictive investment frameworks.

Removal of Short-Term Investment Limits

One of the most significant changes introduced by the RBI is the withdrawal of the short-term investment limit applicable to FPI investments in Government Securities under the General Route.

Under the previous framework, investments in Central Government Securities and State Government Securities with a residual maturity of up to one year could not exceed 30% of an FPI’s total investment in the relevant category. The requirement imposed an additional layer of portfolio monitoring and limited flexibility in managing duration and liquidity positions.

The RBI has now omitted this restriction entirely. FPIs are therefore no longer required to maintain a prescribed balance between short-term and long-term Government Securities holdings and may allocate investments across maturities based on market conditions and investment strategy.

Withdrawal of Security-Wise Limits

The RBI has also removed the security-wise investment cap applicable to Central Government Securities.

Previously, aggregate investments by FPIs and investments made through the Special Rupee Vostro Account (SRVA) route could not exceed 30% of the outstanding stock of any individual Central Government Security. While intended to prevent excessive concentration in particular securities, the restriction often constrained participation in benchmark issuances and reduced investment flexibility.

With the deletion of this provision, FPIs may now invest in individual Government Securities without being subject to a separate security-level cap.

Removal of Concentration Limits

The amendments further eliminate concentration limits applicable to individual FPIs and related FPIs. Earlier, investments by a single FPI, together with its related FPIs, could not exceed 15% of the prevailing investment limit in the case of long-term FPIs and 10% in the case of other FPIs. These limits effectively restricted the size of positions that large institutional investors could build in Indian Government Securities.

The RBI has now removed these restrictions. As a result, investment decisions can be guided by commercial considerations rather than regulatory concentration thresholds, subject to the overall market-wide limits that continue to apply.

Consolidation of Investment Limit Categories

The RBI has also simplified the investment limit framework by merging the existing “general” and “long-term” sub-categories into a single investment limit for Central Government Securities and State Government Securities respectively.

For FY 2026–27, the revised investment limits are as follows:

The consolidation removes distinctions based on investor classification and simplifies the utilisation and monitoring of available investment headroom.

Expansion of the Fully Accessible Route

Alongside the liberalisation of the General Route, the RBI has expanded the scope of securities designated as “specified securities” under the Fully Accessible Route.

Under the revised framework, the following additional securities have been brought within FAR:

New Government Security Issuances

All new issuances in:

• 15-year tenor;
• 30-year tenor; and
• 40-year tenor.

New Sovereign Green Bond Issuances

All new issuances in:

• 5-year tenor;
• 7-year tenor;
• 10-year tenor;
• 15-year tenor;
• 30-year tenor; and
• 40-year tenor.

Consequential Amendments to the Master Direction

To operationalise the revised framework, the RBI has amended the Master Direction – Reserve Bank of India (Non-resident Investment in Debt Instruments) Directions, 2025.

Among the notable changes:

• The definition of “Long-Term FPIs” has been omitted.
• The definition of “Short-term Investments” has been omitted.
• Provisions relating to short-term investment limits, security-wise limits and concentration limits have been deleted.
• References to security-wise monitoring by the Clearing Corporation of India Limited (CCIL) have been removed.
• The scope of FAR-eligible securities has been expanded to include additional long-tenor Government Securities and Sovereign Green Bonds.

These amendments reflect a broader shift from granular investment restrictions towards a framework based on aggregate investment limits and market access.

Conclusion

The RBI’s June 2026 amendments represent a significant liberalisation of the regulatory framework governing FPI investments in Government Securities. By removing short-term investment limits, security-wise caps and concentration restrictions, while simultaneously expanding the Fully Accessible Route, the RBI has substantially simplified the investment regime for foreign investors.

The reforms signal a move towards a more accessible and market-oriented sovereign debt framework and are likely to support deeper liquidity, greater participation across maturities and enhanced integration of India’s Government Securities market with global fixed-income markets.

For our analysis of the Income-tax (Amendment) Ordinance, 2026 exempting Foreign Institutional Investors from tax on interest income and capital gains arising from Government Securities, please see our earlier article.

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