RBI lets banks issue 'masala bonds', to accept corp bonds in LAF
'These measures are intended to further deepen market development, enhance participation, facilitate greater market liquidity and improve communication,' an RBI release said.
Mumbai: Reserve Bank announced on Thursday a slew of changes in fixed income and currency markets such as allowing lenders to issue 'masala bonds' and to accept corporate bonds under the liquidity adjustment facility (LAF).
"These measures are intended to further deepen market development, enhance participation, facilitate greater market liquidity and improve communication," an RBI release said.
To encourage overseas rupee bonds market, banks are being permitted to issue rupee-denominated bonds overseas (masala bonds) for their capital requirements and for financing infrastructure and affordable housing.
Currently, masala bonds can be issued only by corporates and non-banking lenders like, HFCs and large NBFCs.
Masala bonds are instruments through which Indian entities can raise funds by accessing overseas capital markets, while the bond Investors hold the currency risk. These will constitute for additional tier-I and tier-II capital for the lenders, it said, adding such overseas bonds can also be issued to finance infrastructure and affordable housing under a current dispensation which applies for foreign currency bond raising.
It can be noted that so far two Indian corporates -- HDFC and NTPC -- have made use of this facility to raise over Rs 5,000 crore, but the segment was not open to banks.
The RBI will be seeking amendments to enable the central bank to accept corporate bonds under the LAF which is used to bridge temporary liquidity issues by lenders, it said.
Outgoing Governor Raghuram Rajan had earlier said RBI would be announcing a series of measures aimed at bonds and currency markets by end of the month. Rajan, whose tenure ends on September 4, is likely to handover charge to Governor designate Urjit Patel on September 6.
Stating the absence of an overarching ceiling on total borrowing by a corporate entity from the banking system has
resulted in banks collectively having very high exposures to some of the large corporates, the RBI will be coming out with draft guidelines on the 'large exposure framework', it said.
To give an impetus to the corporate bonds market, RBI has also decided to expand limit of partial credit enhancement (PCE) provided by banks.
"The aggregate PCE that may be provided by the financial system for a given bond issue will be increased from the
present 20 per cent to 50 per cent of the bond issue size subject to the PCE provided by any single bank not exceeding 20 percent of the bond issue size and the extant exposure limits," the RBI said.
RBI has constituted a working group to review the guidelines for hedging of commodity price risks by resident
investors in the overseas markets.
To promote retail participation in government securities (G-secs), Reserve Bank will remove the remaining restrictions on seamless transfer of these debt instruments between the depositories and itself.
"This should promote retail participation in the market by facilitating participation by small investors in primary as well as secondary markets," the central bank said.
It can be noted RBI had allowed, for the first time, the retail investors to trade in government securities from August 16.
To ease participation and align regulations, RBI will allow entities exposed to exchange rate risks, whether residents or non-residents, to hedge their transactions with simplified procedures up to a limit of USD 30 million at any given time, the central bank said. Over and above this, the bank added authorised lenders can also permit its customers take an open position limit of up to $5 million.
To encourage more activity in corporate bond market, brokers will be allowed to participate in the corporate bond
repo market as market-makers, beyond the current system of restricting the play to banks, primary dealers (PDs), mutual funds and insurance companies, it said.
Foreign portfolio investors will be allowed to trade directly in corporate bonds without involving brokers, in the
OTC (over the counter) segment on an electronic platform of a recognised stock exchange, it said.
To augment liquidity in G-secs market, a market-making scheme by PDs has been devised in consultation with the
Government, it said.
RBI also proposes to remove tenor limits or counter-party restrictions on listed companies, which are currently allowed to lend through repos in G-sec for a minimum seven days to banks and primary dealers.
The apex bank will be issuing necessary guidelines in consultation with all stakeholders on introducing electronic
dealing platform for repo of corporate bonds by the end of October.
To improve communication, it has been decided that auction results of government bond auctions will be published by RBI at a stipulated time, the release added.
Find latest and upcoming tech gadgets online on Tech2 Gadgets. Get technology news, gadgets reviews & ratings. Popular gadgets including laptop, tablet and mobile specifications, features, prices, comparison.
Finance Ministry credits govt, RBI for ‘green shoots of economic revival’ as agriculture, petroleum, electricity indicators pick up
The Finance Ministry cited "green shoots" of recovery in agriculture, manufacturing and services sectors, and said the prompt policy measures taken by the government and RBI have helped reinvigorate the economy with minimal damage
At $0.6 bn, India records current account surplus in fourth quarter of FY20 for first time in 13 years, says RBI
The RBI data also showed the current account deficit for the October-December quarter of fiscal 2019-20 was revised to $2.6 billion or 0.4 percent of GDP from $1.4 billion earlier.
The statement comes against the backdrop of social media buzz that issues that might arise while transferring money through Google Pay cannot be redressed under law as the app is unauthorised.