SEBI proposal: Easier KYC, fewer disclosures for FPIs investing only in govt bonds

The Securities and Exchange Board of India (SEBI) has proposed a slew of relaxations in regulatory compliance for Foreign Portfolio Investors (FPIs) investing exclusively in Indian Government Bonds (IGBs) via the voluntary retention route (VRR) and fully accessible route (FAR).

The move is aimed at enhancing the ease of doing business and facilitating greater foreign investment in Indian debt markets.

In its consultation paper, the regulator has proposed easing registration and other compliance requirements for a new FPI (foreign portfolio investors) category called IGB-FPIs -- investing exclusively in government bonds.

These routes allow non-resident investors to invest in Indian debt securities without facing limitations such as security-wise or concentration limits.

Sebi has suggested that IGB-FPIs will not need to provide investor group details, as bond investments under FAR/VRR don't have such limits.

The proposal comes against the backdrop of significant growth in FPI investments in IGBs. Holdings under FAR have surged from ₹32,411 crore in March 2021 to over ₹3.06 lakh crore by March 2025, according to data from the Clearing Corporation of India Ltd (CCIL).

The VRR route has also seen an increase in investment limits from ₹1.75 lakh crore in March 2024 to ₹2.05 lakh crore in March 2025.

Indian Government Bonds are set to be included in major global bond indices, including J.P. Morgan’s Global Emerging Markets Bond Index (from June 2024), Bloomberg’s EM Local Currency Government Index (from January 2025), and FTSE Russell’s EM Government Bond Index (from September 2025).

Key proposals

The consultation paper outlines several regulatory relaxations for IGB-FPIs:

1. KYC periodicity rationalisation:

SEBI has proposed aligning Know Your Customer (KYC) review timelines for IGB-FPIs with those prescribed by the Reserve Bank of India for regulated entities—once in 2, 8 or 10 years, based on risk category—replacing the current 1- or 3-year cycle applicable to all FPIs.

2. Waiver of investor group disclosure:

As IGB-FPIs are not subject to investment concentration limits under VRR and FAR, SEBI has suggested that such investors be exempt from disclosing investor group details.

3. Relaxation of NRI/OCI/RI investment norms:

The regulator has proposed permitting Non-Resident Indians (NRIs), Overseas Citizens of India (OCIs), and Resident Indians (RIs) to contribute to IGB-FPIs without restrictions, including being in control of such funds. However, the Liberalised Remittance Scheme (LRS) conditions for RIs will continue to apply.

4. Extended timelines for material change disclosures:

SEBI has recommended extending the deadline for IGB-FPIs to report material changes in information or documentation from 7/30 days to a uniform 30-day window.

5. Transition flexibility:

The paper also proposes allowing seamless transitions between regular FPI status and IGB-FPI status, subject to disclosure and divestment conditions to ensure regulatory compliance.

The Securities and Exchange Board of India (Sebi) has invited public comments on the proposals until June 3, 2025.