The Hindu Business Line : High level panel debates liquidity, P-Notes

The High level Co-ordination Committee (HLCC) on financial markets which met here on Wednesday is understood to have discussed ways to ease the tight liquidity situation in the domestic economy.

Liquidity, restrictions on issue of participatory notes by foreign institutional investors, and raising debt limits for FIIs dominated deliberations at the meeting.

The domestic financial system has been feeling the liquidity crunch for the past few weeks following the turmoil in the international financial markets. The Reserve Bank of India has been providing liquidity support to banks, even opening a second liquidity window in mid-September.

On the issue of P-Notes, there is a view that easing of these restrictions imposed in October 2007 could enhance FII inflows, and therefore liquidity.

SEBI meeting

The board meeting of Securities and Ez\xchnage Board of India (SEBI), scheduled for October 6, is also expected to review the restrictions on issue of P-Notes.

However, the Reserve bank of India, which is part of the HLCC, has always been against allowing investments through P- Notes. This is the first meeting of the HLCC after Dr Y.V. Reddy retired as RBI Governor. He was known to have been critical of investment through P Notes.

FII cap

The HLCC is also understood to have discussed the current ceiling on FII investments in the debt market and possibility of revising it. The investment limits were raised in June to $5 billion in government securities and $3 billion in corporate bonds. With the equities market in a bearish phase, FIIs have been investing more in debt instruments.

Officials from the Finance Ministry, the Insurance Regulatory Authority of India, SEBI and RBI, including the Finance Secretary and the Chairmen of the regulatory bodies, attended the meeting.

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