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RBI may allow FII entry in currency futures market

Dec 12 2012, 21:49 IST
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"We are thinking whether FIIs can participate in currency futures," Dy Governor Khan said. (Reuters)
Summary"We are thinking whether FIIs can participate in currency futures," Dy Governor Khan said.

Reserve Bank of India (RBI) is contemplating to allow foreign institutional investors (FIIs) in currency futures market, Deputy Governor H R Khan said today.

"We are thinking whether FIIs can participate in currency futures," Khan said while speaking at a seminar on capital markets organised by industry body CII here.

He said the RBI is also mulling allowing a repo in certificate of deposits (CDs) issued by banks and commercial papers (CPs) by corporates.

This move, if allowed, will help expand the corporate bond market. Normally, CDs and CPs are of short-term maturity of say, one to six months.

He said discussions to bring down "haircut" on repo or keeping it tenor based, are at an advanced stage and the RBI will come out with guidelines on the same in the next few weeks.

A haircut is a percentage that is subtracted from the market value of an asset that is being used as collateral.

On the proposed reduction in withholding tax on rupee-denominated infrastructure bonds, Khan said the Government is expected to notify the changes soon.

Additionally, for boosting foreign fund flows, Khan said, "we are thinking we will reduce the residual maturity and lock-in period. We are flexible on that."

He reiterated the government's last week announcement of raising the FII caps by USD 5 billion each in government securities (G-Secs) and corporate bonds.

"We continue to evolve and in a cautious manner we will open up. Wherever procedural glitches are there, we will try to sort them out," Khan said.

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