26 Aug 2016 | 12:38 AM
MUMBAI: The RBI today announced a slew of changes in fixed income and currency markets such as allowing lenders to issue ‘masala bonds’ and to accept corporate bonds under the liquidity adjustment facility (LAF).[ + read story ]
Mumbai, August 25
The RBI today announced a slew of changes in fixed income and currency markets such as allowing lenders to issue ‘masala bonds’ and to accept corporate bonds under the liquidity adjustment facility (LAF).
“These measures are intended to further deepen market development, enhance participation, facilitate greater market liquidity and improve communication,” an RBI press note said.
To encourage overseas rupee bonds market, banks are being permitted to issue rupee-denominated bonds overseas (masala bonds) for their capital requirements and for financing infrastructure and affordable housing.
Currently, masala bonds can be issued only by corporates and non-banking lenders like HFCs and large NBFCs. Masala bonds are instruments through which Indian entities can raise funds by accessing overseas capital markets, while the bond investors hold the currency risk.
These will constitute for additional tier-I and tier-II capital for the lenders, it said, adding such overseas bonds can also be issued to finance infrastructure and affordable housing under a current dispensation which applies for foreign currency bond raising.
It can be noted that so far two Indian corporates — HDFC and NTPC — have made use of this facility to raise over Rs 5,000 crore, but the segment was not open to banks.
The RBI will seek amendments to enable the central bank to accept corporate bonds under the LAF which is used to bridge temporary liquidity issues by lenders, it said.
Stating the absence of an overarching ceiling on total borrowing by a corporate entity from the banking system has resulted in banks collectively having very high exposures to some of the large corporates, the RBI will come out with draft guidelines on the ‘large exposure framework’, it said.
To give an impetus to the corporate bonds market, RBI has also decided to expand limit of partial credit enhancement (PCE) provided by banks.
“The aggregate PCE that may be provided by the financial system for a given bond issue will be increased from the present 20% to 50% of the bond issue size subject to the PCE provided by any single bank not exceeding 20% of the bond issue size and the extant exposure limits,” the RBI said. pti