Budget 2019: Sitharaman proposes to allow foreign investors to invest in NBFC debt securities

In an apparant move to welcome more foreign funds into Indian market, Finance Minister Nirmala Sitharaman today in her maiden budget presentation proposed to allow foreign institutional investors (FIIs) and foreign portfolio investors (FPIs) to invest in debt securities issued by non-banking finance companies (NBFCs), which have been facing a crisis following defaults by IL&FS last year, making banks wary of lending to these shadow bankers.

FM Sitharaman proposed a series of reforms for the capital market while proposing merger of the Non-resident Indian (NRI) portfolio route with the FPI route to boost flow of more NRI funds into the country. She said the government proposes to allow FII and FPI investment in debt securities issued by NBFCs, adding it will work with exchanges to allow `AA` rated bonds to be used as collateral.

While proposeing to allow FIIs and FPIs to invest in debt securities issued by the NBFCs, funds would be availabile for cash-strapped NBFCs, who have been facing a crisis following defaults by IL&FS last year. According to the 2019-20 Budget, the NRI portfolio route will now merged with FPI for seamless investment in stock markets to increase more NRI portfolio flows into India. 

The Budget further stated that the Credit Guarantee Enhancement Corporation will be set up in the current fiscal and action plan will be put in place to deepen markets for long-term bonds with specific focus on infrastructure sector. 

According to the Finance Minister, measures will be taken to make the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (Sebi) depositories inter-operable, which is necessary for the seamless transfer of treasury bills. 

In order to attract more funds into real estate and infrastructure sectors, the Budget proposes to allow FPIs and NRIs to subscribe to listed debt papers of real estate investment trusts (REITs) and infrastructure investment trusts (InvITs), according to FM, who also said that trading in corporate bonds would be made user-friendly.