The Hindu Business Line : Indian holdings of US treasuries up $400 m in Nov

According to data released by the US Treasury Department, the holdings were down $1 billion from the same period last year, and $4 billion from the beginning of this fiscal, when it was $18 billion. The major investors in US government securities, besides the RBI, are General Insurance Corporation of India, which has global reinsurance operations and foreign branches/subsidiaries of domestic banks also have a major exposure.

Among the major factors that contributed to the drop on a year-on-year basis were the RBI's treasury management and the shift to more liquid assets. Such assets were held in the form of balances with other central banks, Europe and the UK, and with the Bank for International Settlements.

Indian institutions' preference for short tenor securities, on the other hand, was driven by caution and to avert losses in the event of steep depreciation, the bankers said. Consequently, incremental holdings were mostly in the form of highly liquid treasury bills and bank deposits. The shift to more liquid assets denominated in dollars was evident from the rise in US bank liabilities to Indian institutions. US banks' own liabilities during the period went up by $283 million and US treasury obligations, essentially in the form of short-term bills, was up by $503 million. In addition, Indian institutions are also large investors in bonds floated by multilateral institutions such as the World Bank and the International Monetary Fund, a transition from being a debtor to a creditor nation.

Bankers also said that the month-on-month increase in holdings in November was triggered by large inflows from foreign institutional investors, especially from East Asia.

East Asian institutions have been large investors in the domestic equity markets since the beginning of this fiscal.

But the concern over possible exchange rate losses and depreciation of investments over possible hikes in US interest rates have also prevented the RBI and the domestic institutions from investing in long-term US securities. This is especially since the US Federal Funds rate (The fed funds rate is the interest rate at which US banks lend to one another their excess reserves) has undergone 12 graded increases to 4.25 per cent.