Following a higher interest rate environment and a relaxation in the investment limit for foreign portfolio investors in government securities over the last couple of years, the FII holding of dated securities of Government of India more than doubled to 3.67 per cent in FY15.Coming out with its Medium-Term Debt Management Strategy, RBI also said the Indian economy is likely to remain resilient and will see moderate to reasonable growth. It, however, said that credit growth for banks may remain low.
Coming out with its Medium-Term Debt Management Strategy, RBI also said the Indian economy is likely to remain resilient and will see moderate to reasonable growth. It, however, said that credit growth for banks may remain low.
Data released by RBI as part of its MTDS (2015-2018) shows that while FII ownership of the total dated securities of GoI stood at 0.52 per cent in March 2008, it rose to 1.68 per cent in the year ended March 2014 and then jumped to 3.67 per cent in FY15. It further shows that even the mutual funds and insurance companies substantially increased their holding of the government securities.
For MFs, the holding went up from 0.78 per cent of the total securities in FY14 to 1.89 per cent in FY15, and for insurance companies it rose from 19.5 per cent to 20.87 per cent in the same period. Even the share of financial institutions rose from 0.7 per cent to 2.1 per cent.
While the share of FIIs, MFs and insurance companies grew, commercial banks saw a decline in their share and it came down to 43.3 per cent in FY15 from 44.46 per cent in FY14. It stood at 51.2 per cent in March 2008. Reasoning out the decline in banks’ holding of G-Sec, RBI said that it is partly due to reduction in statutory liquidity ratio (SLR) from 23 per cent in June 2014 to 21.5 per cent in February 2015. However, notwithstanding the decline in SLR requirement, RBI said bank’s share may grow because of slow credit take-off. “It is expected that there would be reasonable demand in the medium-term as credit off-take remains lower,” said RBI.
Looking to diversify the investor base, RBI said that with the entry of co-operative banks, regional rural banks, pension funds, mutual funds and NBFCs, the institutional investor base has reasonably diversified and it is taking efforts to bring in new investors for further diversification.
Stating that improved cash flows of insurance companies, mutual funds, pension funds, etc. reflect an upturn in economic activity, the central bank said that it expects a 10 per cent increase in premium collections for life insurance companies and that would increase the demand for G-Secs.
Outlining its debt management strategy RBI said that the objective of debt management strategy is to mobilise borrowings at low cost over medium to long-term subject to prudent levels of risk in debt portfolio. For the baseline scenario, RBI took assumptions from Medium Term Fiscal Policy Statement in the Union Budget 2015-16 (3 per cent target for gross fiscal deficit for 2017-18 and GDP at current market prices at around 12.4 per cent in 2017-18) and said that the baseline scenario is expected to be closer to the reality. If that holds true then the weighted average cost of borrowing would go down from 8.08 per cent for 2014-15 to 7.53 per cent in 2017-18.
RBI also expects Indian economy to remain resilient. “For the years 2015-16 to 2017-18 debt strategy, it is assumed that economy will record moderate to reasonable growth, a moderation in inflation as per the path projected by Reserve Bank and financial stability. Notwithstanding global uncertainties, Indian economy is expected to remain resilient due to favourable domestic macroeconomic factors backed by stable growth with low inflation,” said RBI.