The Hindu Business Line : Holdings of US T-bills declining

Bangalore, Aug.24 India’s investment in US Treasury Securities (T-bills) dropped $2.5 billion in June this year. According to data released by the US Treasury Department, India’s holdings were down to $12.8 billion from $15.3 billion in May this year and $13.1 billion in June 2006. Besides the Reserve Bank of India, General Insurance Corporation of India, which has global reinsurance operations, foreign branches/subsidiaries of domestic banks and domestic mutual funds are permitted to invest in foreign government securities. They invest mostly in liquid short-term T-bills . Investments in short term T-bills in June were $6.03 billion. But even short-term T-bill investments were down on a monthly basis. In May this year, T-bill holdings were worth $9.26 billion. The fall happened despite domestic foreign exchange reserves surging $5.3 billion between May and June this year.

Bankers said the shifts were part of the aggressive portfolio reshuffles undertaken by the RBI,to offset the deficit incurred in interventions in the foreign exchange markets and consequent domestic open market operations for sucking out liquidity. The open market operations through Reverse Repurchase were made at 6 per cent, but investments in US treasuries earned barely 3.5 per cent or a deficit of about 2.5 per cent.

But such losses, bankers said, were largely neutralised by the cross border treasury operations. Besides, large amounts of the foreign exchange reserves are parked as cash balances with multi-lateral financial institutions and other central banks including the Bank for International Settlements, The European Central bank and the Bank of England. As a result, Indian exchange reserves have remained mostly insulated from US dollar interest rate volatility, bankers added.

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