As part of its efforts to attract foreign capital, the Reserve Bank of India (RBI) has allowed foreign investors to make investments in locally issued credit-enhanced bonds.

The central bank on Monday announced that foreign institutional investors (FIIs) and qualified foreign investors (QFIs) would be able to invest up to US$5 billion in the credit-enhanced bonds issued by Indian companies.

Apart from FIIs and QFIs, long-term investors registered with the Securities & Exchange Board of India (Sebi), including Sovereign Wealth Funds, multilateral agencies, pension/insurance/endowment funds and foreign central banks, are also eligible for making investments in the so-called credit-enhanced bonds.

Credit-enhanced bonds can be described as debt instruments that a lower-rated company can issue to enhance the credit profile of its debt issuance.

The RBI also declared that the US$5 billion limit would be part of the total US$51 billion quota for corporate debt investment for foreign investors.

Earlier, the central bank had allowed foreign investors to buy government securities and bonds issued by Indian companies on repatriation basis, subject to conditions prescribed by the regulators from time to time.