MUMBAI: People’s Bank of China (PBoC), the world’s second-largest holder of financial assets after the US Federal Reserve , has emerged as acreditor to the Indian government. The central bank of China, which functions as a monetary authority as well as a regulator of financial institutions, bought Government of India bonds soon after New Delhi’s decision to raise the permissible investment limit in gilts for offshore investors.PBoC is registered with the Indian capital market regulator Sebi as a registered foreign portfolio investor (FPI) — the new nomenclature for foreign institutional investors (FII) under a new regulatory regime. The move hints at a greater acceptability of rupee in the global financial markets and its relative stability compared with other emerging market (EM) currencies."China may be testing the water with India deciding to progressively allow foreign investment in government bonds. Besides, diversifying its foreign exchange reserves, Indian G-Secs offer a higher yield," said a regulatory source.The development comes at a time when PBoC has sold a small slice of its holding in the US treasury bills. It is widely perceived that PBoC has been offloading dollars and buying yuan to prop up the local exchange rate. The central bank’s forex reserve is now at $3.51 trillion, down from $4 trillion in June 2014.In its monetary policy review on September 29, the Reserve Bank of India (RBI) said that it would fix the FPI limit in government bonds in rupee terms and allow overseas investors to hold up to 5% of outstanding stock in phases by March 2018. The RBI spokesperson declined to comment on the subject.The investment headroom released after the conversion of the total investment limit into rupees was close to Rs 13,000 crore (excluding securities issued by state governments in which FPIs have recently been permitted to invest as a separate category). Out of Rs 13,000 crore, Rs 7,500 crore was earmarked for category I FPIs, while the balance Rs 5,500 crore was auctioned to other FPIs.It is understood that of the total amount so far invested by category I FPIs, the amount bought by PBoC is the largest. While no confirmation was available on the exact quantum of investment by the Chinese central bank, market circles believe it could be in the region of $500 million. The Malaysian central bank, Bank Negara, and Norges Bank, the central bank of Norway, are also believed to have recently invested in government bonds. FPIs have already put in Rs 3,500 crore in state government bonds, the maximum permissible investment limit in this asset category.