Although the existing framework for investing in domestic bonds by foreign portfolio investors (FPI) is unlikely to change, the Reserve Bank of India could “take a bit of chance” and review the possibility of allowing FPIs to buy corporate bonds with less than three-year maturity, said deputy governor HR Khan on Tuesday.
“…we will look at whether some of the areas we can review because corporate debt is slightly different from G-Sec; so, we can take a little bit of chance and see which are the areas we can do it,” said Khan at a capital markets event organized by Ficci.
He added that the central bank will indeed allow greater participation to make the bond market vibrant, but would not open ‘flood gates’ for investors. “We are not so desperate that we are going to open flood gates to hot money, but certainly we will see that there is vibrancy,” he said.
In September, the RBI laid out a framework wherein FPIs will be allowed to hold 5% of the outstanding stock of government bonds in a phased manner by March 2018 and also allowed FPIs to invest in state development loans for the first time. This would throw open an additional investment limit of R1.2 lakh crore over and above the existing $30 billion. While the government bond limits are now expressed in rupees, corporate bond investment limits are still expressed in dollars.
Khan added that the framework of enhancing investment limits in stages will deepen the domestic bond market and the RBI will study the developments before considering inclusion of domestic bonds in global bond indices.
The government and RBI have been in talks with global indices to include Indian bonds. However, such inclusion requires India to open up its bonds markets completely to foreign investors. “Right now, there is no pressing need for India to open up too fast, too much and getting into global index,” said Khan.
On developing and improving a corporate bond market, Khan said the sovereign bond market has to be deepened further as it acts as an anchor to the corporate bond market.
The recent issue of a government bond with 40-year tenure will provide a long-term anchor, he added. The central bank is also closely looking at the responses to rupee bonds issued overseas by Indian companies, also called masala bonds.
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