The central bank authorizes [null,2,0] the platform for repo in corporate bonds and encourages credit supply for large borrowers through a market mechanism. On Thursday, the Reserve bank of India (RBI) allowed banks to elevate capital via Masala bonds in the overseas market and said it would seek legal amendments to allow banks to borrow from the central bank pledging corporate bonds or corporate bonds repo.
The central bank allowed resident individuals to maintain greater open positions in the currency market and lifted some restrictions on hedging in the currency market, essentially opening up India’s closely guarded currency market and perhaps bringing an element of speculation in the change rate.
“Reserve bank will now permit entities exposed to exchange rate risk, whether resident or non-resident, to undertake hedge transactions with simplified procedures, upto a limit of $30 million at any given time. The exposed person will be free to access any market (OTC or exchange) and use any of the permissible products at his discretion,” RBI said in its statement on its website.
The measures taken on Thursday are for the development of fixed income and currency markets — one of the unfinished agendas of outgoing RBI governor Raghuram Rajan [null,0,3,0,3].
The measures also include inducing liquidity in semi-liquid government securities, apart from initiates, making the corporate bond market more vibrant. Many of the significant financial institution announced measures have been built at the recommendations of the H R Khan committee report on the corporate bond market that was released a week ago by the Securities Exchange Board of India (SEBI).
“These measures are intended to further market development, enhance participation, facilitate greater market liquidity and improve communication,” the central bank said in a statement on its website.
In the comprehensive measures announced on Thursday, the central bank decided to enhance the aggregate limit of partial credit enhancement provided through banks to corporate bonds, permit brokers in corporate bond repos, authorize the platform for repo in corporate bonds and encourage credit supply for large borrowers through the market mechanism.
“To further encourage the overseas Rupee bond market, banks are being permitted to issue Rupee bonds overseas (Masala Bonds) for their capital requirements and for financing infrastructure and affordable housing,” the central bank said.
The central bank said it has worked out a market-making scheme in government securities by Primary Dealers (underwriters of government bonds) in consultation with the government, which may help in “increasing the liquidity of semi-liquid securities.”
RBI will relax the tenor and counterpart restrictions in the repo market in G-sec and give foreign portfolio investors (FPIs) direct access to RBI’s anonymous bond trading platform NDS-OM to ease the investment process debt securities. The statement said that SEBI and RBI both have agreed to extend the equal facility to FPIs for corporate bonds.
“In a fundamental shift in foreign exchange market regulations, greater leeway is being proposed for residents to maintain open positions. The permissible limits for hedging in the OTC, as well as exchange-traded markets, are also being rationalized,” RBI said.
Besides, the central bank added, “it is also proposed to comprehensively review the framework for hedging of commodity price risk in the overseas markets by Indian companies.”
“The above measures underline the broad philosophy of measured and well-signaled liberalization of markets while minimizing the risks associated with speculation, competition, and innovation,” RBI further said.