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The Reserve Bank of India on Thursday announced a slew of debt market reforms to simplify participation and enhance liquidity, besides allowing the use of newly-introduced instruments such as Masala Bonds.
The measures accept many of the recommendations made by HR Khan Committee.
To improve market liquidity, the RBI allowed market making in Government Securities (G-Secs), accepted corporate bonds as eligible collateral under its Liquidity Adjustment Facility, removed the 7-day restriction for lending by listed companies in G-Sec market repo, besides introducing the electronic platform for corporate bond repos.
An RBI statement said Foreign Portfolio Investors (FPIs) would be allowed access — through primary members — to its NDS-OM (an electronic platform owned by the RBI where secondary market trading in G-Secs is done), ) besides allowing them direct access to the corporate bond market sans brokers.
“Most of the announcements made are at the in-principle approval stage. However, measures such as permitting brokers in repos in corporate bonds will make the market more liquid,” said Soumyajit Niyogi, Associate Director, India Ratings.
Echoing his view, Madan Sabnavis, Chief Economist at CARE Ratings, said: “The RBI has covered three important aspects of the bond market: development, instruments and players. The pace of reaction and the extent to which participants react will determine the final impact.”
But there were sceptics as well. “By giving FPIs access to NDS-OM, this will hopefully act as an enabler. But FPIs are fine dealing with brokers and not directly with NSE. So how much of an impact the access to NDS-OM will create, remains to be seen.
“I think what SEBI and RBI need to do is speak to actual participants in the market, not consultants or brokers, but to the foreign investors, and see what is it that they want changed,” said a CEO of a mutual fund.
To improve retail participation in G-Secs, the RBI said it would remove the remaining restrictions on seamless transfer of G-Secs between depositories and itself. This would prove beneficial as retail investors with demat accounts have recently been allowed to trade directly on the NDS-OM.
Infra, housing boost To boost financing of infrastructure and affordable housing, RBI has proposed to allow banks to issue Additional Tier-1 bonds in the form of perpetual debt instruments, besides allowing issuance of Tier-2 bonds.
The RBI also said it would shortly issue guidelines for raising the ceiling of partial credit enhancement from 20 per cent of a bond issue to 50 per cent to enable issuers with weaker credit ratings to access the bond markets. “This would enable more money flow into infrastructure lending,” said Arvind Chari, Head-Fixed Income Quantum Advisors.
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