RBI's Simplification of Foreign Portfolio Investor (FPI) Investment in G-Securities

 

RBI's Simplification of Foreign Portfolio Investor (FPI) Investment in G-Securities

This report is based on the RBI circular RBI/2026-27/97 – A.P. (DIR Series) Circular No. 11 dated June 5, 2026, titled "Investments by Foreign Portfolio Investors in Government Securities – Amendments to the Regulatory Framework". The reforms are aimed at making Indian sovereign debt more attractive to foreign investors and improving capital inflows.

1.    Circular Reference and Legal Background

·   Circular Reference: RBI/2026-27/97 – A.P. (DIR Series) Circular No. 11.

·   Date: June 5, 2026.

·   Effective Date: Immediately from June 5, 2026.

·   Legal Basis: The circular was issued under The Foreign Exchange Management Act, 1999 (FEMA), The Foreign Exchange Management (Debt Instruments) Regulations, 2019, and RBI's Master Direction – Non-resident Investment in Debt Instruments Directions, 2025.

2.    Key Changes Introduced

The changes simplify the regulatory framework, reduce compliance burdens, and enhance post-tax returns for overseas investors.

Change	Details
Removal of Investment Restrictions for FPIs	RBI has withdrawn restrictions on FPIs investing in Government Securities (G-Secs) through the General Route. The limits removed include Short-term investment limits, security-wise investment limits, and concentration limits.
Merger of Investment Categories	The earlier "General" and "Long-Term" investment categories have been merged. This results in a single investment limit for Central Government Securities and State Government Securities (SGSs).
Expansion of Fully Accessible Route (FAR)	The FAR framework, which permits eligible foreign investors to purchase securities without investment caps, has been expanded to include: All new 15-year, 30-year, and 40-year G-Secs, new Sovereign Green Bonds in specified tenors, and certain existing securities.
Tax Relief by Government	Alongside the RBI measures, the Central Government provided tax benefits to significantly enhance post-tax returns. These include Exemption of long-term capital gains tax on G-Secs for foreign investors, and removal of withholding tax on interest earned from such securities.

 3.  Rationale for the Reforms

The reforms are part of a broader package announced on June 5, 2026, aimed at deepening India's bond market.

• Supporting the Rupee: Increased foreign investment is expected to bring stable dollar inflows, supporting the rupee against pressures from rising crude oil prices, foreign equity outflows, and global market volatility.
• Increasing Demand for Indian Bonds: Simplified regulations are intended to attract larger allocations from global bond funds, capitalizing on India's inclusion in major global bond indices.
• Lower Borrowing Cost for Government: Greater demand for G-Secs leads to higher bond prices and lower bond yields, allowing the Government to borrow at reduced interest rates. Markets reacted positively, with benchmark 10-year G-Sec yields declining after the announcement.

4. Impact Analysis

Positive Impact	Possible Risks	Impact on Retail Investors
More foreign investment in the Indian debt market.	Higher dependence on foreign capital.	While the announcement is mainly for FPIs, the resultant increase in liquidity and depth in the G-Sec market can indirectly benefit retail investors.
Better liquidity in Government Securities.	Global risk-off events may trigger sudden outflows.	Retail investors invest through the RBI Retail Direct Scheme, Gilt Mutual Funds, Bond ETFs, and Direct Government Bonds.
Lower borrowing cost for the Government.	Foreign investors may influence bond market volatility. (Sovereign debt investors are noted as generally more stable than equity investors).	The existing RBI Retail Direct platform allows individuals to invest directly without intermediaries.
Support for rupee stability.
Stronger integration with global bond markets.

 5. Key Takeaway

The RBI's June 2026 reforms constitute one of the most significant liberalisations of foreign investment norms in G-Secs in recent years. By removing investment limits and expanding the Fully Accessible Route, and combining these with tax exemptions, India is positioning its sovereign bond market as a more attractive destination for global capital. The expected long-term outcomes are a strengthened rupee, a deeper bond market, and reduced government borrowing costs.

Case Study Report: SEBI Interim Order against Rajesh Exports Limited (REL)

Case Study Report: SEBI Interim Order against Rajesh Exports Limited (REL)

This report details the significant regulatory action taken by the Securities and Exchange Board of India (SEBI) on June 3, 2026, against Rajesh Exports Limited (REL) and its promoter, alleging massive financial misrepresentation and non-cooperation.

  i.     Introduction and Regulatory Context

The Securities and Exchange Board of India (SEBI) issued an extensive 109-page Interim Ex-Parte Order on June 3, 2026, against Rajesh Exports Limited and its Chairman and Managing Director (CMD), Rajesh Mehta. The order was passed by Whole-Time Member Kamlesh Chandra Varshney.

The action stemmed from an investigation launched after a shareholder complaint received in March 2024 raised serious concerns over large outstanding trade receivables in the company’s books. SEBI described the preliminary findings as "egregious and unheard of" due to the scale of the financial manipulation. The formal investigation covered the financial period from April 2020 to March 2024.

ii.     Key Findings and Allegations

SEBI’s investigation and forensic review, conducted by BDO India Services Pvt Ltd, uncovered multiple instances of systemic misrepresentation and fraud at the group level:

a.     Massive Revenue Inflation

·    SEBI alleged a mass misrepresentation of financial statements from the fiscal years FY2021 to FY2025.

·  Consolidated Revenue: The regulator found a revenue inflation aggregating approximately ₹15.15 lakh crore ($158.30 billion) over the five-year period.

·   Scale of Inflation: This misstated amount accounted for nearly 99.8% of the total consolidated revenue attributed to overseas subsidiaries. Prima facie evidence suggested that about 97% to 99% of the company's revenue may have been inflated.

·   Overseas Subsidiaries: The manipulation focused heavily on the revenues reported by overseas entities, particularly the Swiss precious metals refiner, Valcambi SA. The consolidated revenue from these subsidiaries was found to be disproportionately large compared to the minimal standalone revenues reported by the Swiss entity in its audited financials.

·     Standalone Misstatement: Allegations also covered standalone financials, with a misstatement of ₹12,557 crore in standalone revenues during FY2021-FY2024.

b.    Fund Diversion and False Transactions

SEBI detailed specific instances of fund routing and misleading accounting entries:

·     Disguised Personal Trading: The company recorded false gold sales (₹11,487 crore) and purchases (₹11,488 crore) with a stockbroker, Affluence Shares and Stocks Private Limited. The broker, however, denied having any such transactions with REL. SEBI alleged that these false entries were used to disguise personal gold derivative trades undertaken by CMD Rajesh Mehta in his personal account.

·     Diversion of Corporate Funds: Corporate funds totalling up to ₹9.26 billion were allegedly transferred to Rajesh Mehta’s personal accounts for purposes including derivative trades, without board or audit committee approval and without adequate related-party disclosures.

c.     Misrepresentation of Assets

The company failed to provide supporting documentation for non-current investments of ₹1,035 crore, which it had claimed were investments in gold mines in Africa in FY2023. SEBI noted the company failed to furnish any breakup, reconciliation, or valuation report demonstrating the existence of the alleged assets.

d.     Systemic non-cooperation

SEBI cited persistent non-cooperation by the company and its promoter throughout the investigation, which significantly constrained the forensic review.

·     Withholding Access: The company failed to provide access to key accounting systems, including ERP, and withheld critical financial records and complete documentation sought by the forensic auditor (BDO India Services Pvt Ltd).

·     Verification Constraint: The auditor was unable to independently verify large portions of the company’s transactions, with only a small fraction of sampled transactions being fully substantiated with documents.

iii.  Regulatory Action and Directions

Given the severity of the findings, SEBI issued the following immediate and interim directions to protect investors and market integrity:

·     Restriction on CMD: CMD Rajesh Mehta has been immediately restrained from buying, selling, or dealing in the securities of Rajesh Exports Limited until further orders.

·     Cooperation Mandate: Rajesh Exports was directed to immediately cooperate fully with the investigating officer and forensic auditors.

·     Information Submission: The company should provide all pending information sought by investigators within 30 days of the order.

·  Disclosure Requirements: The company was ordered to make "true and fair" disclosures in its financial statements, strengthen compliance under the Listing Obligations and Disclosure Requirements (LODR) framework, and publicly publish all outstanding separate audited financial statements of its subsidiaries on its website.

·     Further Action: SEBI has ordered the appointment of a fresh forensic auditor to conduct a more detailed review of the books and transactions. 

·     Additionally, the regulator referred the conduct of the company’s statutory auditors (BSD & Co) for the offending years to the National Financial Reporting Authority (NFRA) for appropriate action.

The misrepresentation and fund diversion were estimated to have caused shareholder wealth erosion amounting to ₹127.26 billion.

 Source: SEBI adjudication order no. WTM/KV/CFID/CFID-SEC6/32431/2026-27 dated June 3, 2026