The Reserve Bank of India has made some helpful changes for foreign investors putting money into Indian corporate bonds. Earlier, there were two main rules that made things a bit tricky: first, foreign investors could only put up to 30% of their bond money into short-term bonds (those maturing in under a year); second, they weren’t allowed to buy more than 50% of any single bond issue.
Now, both of those rules are gone. This move, announced in the 2025 update to the RBI’s guidelines, is great news for fintechs and NBFCs who often raise funds from global investors – it gives them more flexibility and fewer roadblocks.
Context
India has always tried to strike a careful balance when it comes to letting foreign investors into its markets – welcoming their money, but making sure things stay stable. Foreign investors, also known as FPIs, had to follow two tough rules for quite some time. One, they could only invest a small portion of their money in bonds that matured in less than a year. And two, they weren’t allowed to buy more than half of any one company’s bond issue.
These rules were meant to protect the market from too much short-term or risky money. But in reality, they often made life harder for global investors and for Indian fintechs, NBFCs, and startups looking for more flexible ways to raise money.
Now, with these limits removed, the RBI has made it easier for everyone. FPIs can invest more freely, and Indian companies can structure debt deals that better suit their needs. It’s a big step toward smoother, faster fundraising, especially for those relying on overseas capital.
Key Highlights
What’s Been Relaxed?
- Short-Term Investment Limit Removed
Previously, FPIs could only invest up to 30% of their total corporate debt portfolio in instruments maturing within one year. This cap is now gone. - Issue-wise Concentration Limit Removed
The 50% ceiling on how much a single FPI (or related group) could invest in a single bond issue has been lifted.
Previous Restrictions in Detail
- Short-Term Investment Cap
Any corporate bond with ≤1 year residual maturity was capped at 30% of the FPI’s total portfolio. This meant FPIs had to constantly monitor and rebalance their holdings to stay compliant. - Concentration Cap
No single investor (or related group) could own more than 50% of a bond issue. This fragmented funding and discouraged anchor participation.
Who Gains?
- Sovereign wealth funds, pension/endowment funds
- Foreign central banks and long-term investment entities
- Indian fintechs, NBFCs, and startups raising structured debt
Why This Matters for the Fintech Ecosystem
India’s fintech and alternative lending sectors rely heavily on debt capital. From asset-backed lending platforms to consumer BNPL startups and SME finance apps – many players seek regular rounds of debt funding. Here’s how the RBI’s move helps:
1. Easier Access to Bridge and Short-Term Capital
Previously, raising short-duration working capital debt from FPIs required tight structuring to stay within the 30% cap. Now, you can issue short-term bonds (even 3-month or 6-month) without worrying about compliance hurdles.
Example:
A lending fintech needs to shore up liquidity for an upcoming festive-season lending burst. They can now structure a 6-month NCD, raise the full amount from an FPI, and repay quickly – without risking violation of investment limits.
2. Simplifies Anchor Investor Participation
Anchor investments from FPIs were often blocked due to the 50% cap on any one issue. Now, large offshore institutions can underwrite entire bond issuances. This increases confidence and enables smaller domestic institutions to follow.
Example: An NBFC issuing â‚ą80 crore worth of debentures can now have a single FPI anchor 100% of the issue – previously, they’d need at least two or more.
3. Enables More Innovative Debt Structures
With the shackles of cap-based structuring removed, fintechs can now:
- Offer flexible tenors (from ultra-short to long-term)
- Do staggered redemptions
- Create callable structures without concentration risk
- Tap into specific FPI mandates (e.g., climate finance, real estate, retail)
How FPIs Can Now Operate
These relaxations apply specifically to the General Route for FPI investments. Under this route:
- FPIs still need to comply with overall sectoral caps and RBI/SEBI registration requirements.
- Compliance on reinvestment, residual maturity (now relaxed), and concentration tracking now rests with custodians and depositories.
Other investment routes like the Voluntary Retention Route (VRR) and Fully Accessible Route (FAR) continue to operate as per their respective norms.
Action Points for Fintechs and NBFCs
âś… Legal & Compliance Teams:
- Update bond issuance templates and disclosure documents
- Review offering memoranda to reflect the relaxed concentration and maturity limits
- Notify existing investors and auditors of the regulatory shift
âś… Product Teams:
- Consider introducing new bond products (e.g., “48-hour maturity” instruments)
- Design flexible tenure structures to suit working capital cycles
âś… Treasury & Finance Heads:
- Re-engage with FPIs for possible anchor mandates
- Rework your capital stack to reduce reliance on expensive short-term domestic credit
âś… Custodians & Exchanges:
- Track revised investment limits dynamically
- Provide updated dashboards to FPI clients to reflect the removal of issue caps
Still Intact: Other Prudential Norms
It’s important to note that while these two limits have been relaxed, other macro-prudential controls remain in force:
- Total FPI investment in corporate bonds is still capped at 15% of outstanding stock.
- FPIs are still prohibited from investing in real estate, land, and capital markets via unlisted debt securities.
- Unlisted securities must still be listed within SEBI timelines – or redeemed/bought back by the issuer.
Strategic Implications for India’s Debt Market
This move signals a clear intent from the RBI to internationalise and deepen India’s debt market. Here’s how:
1. Aligns with Global Practice
Advanced economies rarely cap institutional participation at the issue level. This alignment boosts India’s reputation among institutional debt investors.
2. Improves Market Liquidity
With fewer constraints, FPIs are likely to increase their exposure to Indian credit markets, bringing better pricing and liquidity to corporate bonds.
3. Enhances Fund Reinvestment Flow
Easing short-term restrictions allows global funds to recycle capital faster – resulting in more frequent investment cycles and deeper engagement.
Conclusion
The RBI’s recent relaxations are more than just compliance tweaks – they’re a strategic nudge for Indian startups and NBFCs to tap global debt capital more aggressively. Whether you’re an established fintech or a scaling startup with foreign interest, the runway to structured, flexible debt funding just got longer and smoother.
But with greater access comes greater responsibility. Issuers must ensure robust risk disclosures, prudent treasury practices, and clear communication with investors to truly benefit from this regulatory easing.
Want help restructuring your bond programs or investor mandates post this regulation? Talk to BeFiSc. Our risk and compliance intelligence platform helps fintechs stay future-ready and regulator-proof.
