The Reserve Bank of India (RBI) on Thursday, permitted banks to raise additional tier-I and tier-II capital through masala bond issues in overseas markets.
“It is also proposed to allow banks to issue rupee denominated bonds overseas under the extant framework of incentivising issuance of long-term bonds by banks for financing infrastructure and affordable housing,” the RBI said. The regulator also said that it would allow both resident and non-resident individuals to hedge their currency risks in either of the two markets — over the counter (OTC) or exchange — up to 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. Authorised dealer banks will monitor adherence to this limit on the basis of periodic reporting by the exposed persons,” the RBI said in its statement.
In an effort to develop the $72 billion Indian corporate bond market further, the RBI announced that it was considering making corporate bonds eligible as collateral for liquidity operations. The central bank has also decided to augment the aggregate limit of partial credit enhancement — given by banks to corporate bonds — and to allow brokers access to corporate bond repos. Other measures include allowing foreign portfolio investors (FPI) to invest directly in corporate bonds, both in the OTC segment and on an electronic platform of a recognised stock exchange, and allowing FPIs to trade on negotiated dealing system-order matching (NDS-OM). The guidelines for the latter will be announced shortly, the RBI said.
“This is one of the largest set of measures I have seen the RBI announce in one go. The measures are certain to go a long way towards deepening the Indian corporate bond market,” Shashikant Rathi, senior VP and head, investments, ALM and capital markets at Axis Bank. Rathi said the announcement regarding increase in limit of partial credit enhancement from 20 per cent of the issue size to 50 per cent is important as it enables corporates to increase their credit rating and thereby draw in more investment from insurance companies and mutual funds. The RBI also said that it has devised a market making scheme in government securities by primary dealers in consultation with the government which may help in increasing the liquidity of semi-liquid securities. FE