1. RBI Banks get masala bonds nod from RBI; residents get clearance to hedge currency risks

RBI Banks get masala bonds nod from RBI; residents get clearance to hedge currency risks

RBI to also allow both residents and non-residents to hedge their currency risks either in OTC or exchange market up to a limit of $30 million

By: | Mumbai | Published: August 26, 2016 6:09 AM
rbi policy, rbi monetary policy, rbi emi, rbi rate cut, rajan rbi policy, monetary policy The regulator also said it would allow both resident and non-resident individuals to hedge their currency risks in either of the two markets – OTC or exchange – up to a limit of million at any given time. (Source: IE)

The Reserve Bank of India (RBI) has permitted banks to raise additional tier-I and tier-II capital through masala bond issues in overseas markets, it said in a statement on Thursday.

“It is also proposed to allow banks to issue rupee-denominated bonds overseas under the extant framework of incentivising issuance of long term bonds by banks for financing infrastructure and affordable housing,” the central bank said.

The regulator also said it would allow both resident and non-resident individuals to hedge their currency risks in either of the two markets – OTC or exchange – up to a limit of $30 million at any given time.

“The exposed person will be free to access any market (OTC or exchange) and use any of the permissible products at his discretion. Authorised dealer banks will monitor adherence to this limit on the basis of periodic reporting by the exposed persons,” the RBI said in its statement.

In an effort to develop the $72 billion Indian corporate bond market further, RBI announced that it was considering making corporate bonds eligible as collateral for liquidity operations.

The central bank has also decided to augment the aggregate limit of partial credit enhancement – given by banks to corporate bonds – and to allow brokers access to corporate bond repos. Other measures include allowing foreign portfolio investors (FPI) to invest directly in corporate bonds, both in the OTC segment and on an electronic platform of a recognised stock exchange, and allowing FPIs to trade on NDS-OM. The guidelines for the latter will be announced shortly, RBI said.

“This is one of the largest set of measures I have seen RBI announce in one go. The measures are certain to go a long way towards deepening the Indian corporate bond market,” Shashikant Rathi, senior vice-president and head, investments, ALM and capital markets at Axis Bank, told FE.

Rathi added that the announcement regarding the increase in limit of partial credit enhancement from 20% of the issue size to 50% is particularly important as it enables corporates to increase their credit rating and thereby draw in more investment from insurance companies and mutual funds.

The RBI also said that it has devised a market making scheme in government securities by primary dealers in consultation with the Government which may help in increasing the liquidity of semi-liquid securities.

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