Reserve Bank of India has announced a series of measures to boost investor participation and market liquidity in both, corporate bond and currency markets. As per an official statement, it will allow commercial banks to issue rupee bonds in overseas markets, called Masala bonds, both for their capital requirement and for financing infrastructure and affordable housing.
"Accepting many of the recommendations of the Khan Committee to develop the corporate bond market, it has been decided to enhance the aggregate limit of partial credit enhancement provided by banks, permit brokers in corporate bond repos, authorise the platform for repo in corporate bonds and encourage credit supply for large borrowers through market mechanism," the statement said. The Central Bank has now decided by the regulator that the aggregate PCE that will be provided by the financial system for a given bond issue will be increased from the present level of 20 per cent to 50 per cent of the bond issue size, subject to the PCE provided by any single bank not exceeding 20 per cent of the bond issue size and the extant exposure limits.
To ease access to the foreign exchange market for hedging in over the counter and exchange-traded currency derivatives, the RBI has allowed entities exposed to exchange rate risk, both resident and non-resident, to undertake hedge transactions with simplified procedures, up to a limit of $30 million at any given time. "The exposed person will be free to access any market and use any of the permissible products at his discretion," said the RBI. "This is intended to improve liquidity and depth in the foreign exchange market and the limit will be revised from time to time." To enhance participation in the corporate bond market, the RBI has decided that brokers authorised as market makers will be allowed to participate in the corporate bond repo market. "This measure is expected to meet their funding and securities requirement arising out of market making activities."
