The Reserve Bank of India may ease norms for foreign investors, including permitting them to trade in currency futures and allow repurchase facility in commercial papers (CPs) and certificate of deposits (CDs), to boost the stagnant bonds market.
“We are thinking if foreign institutional investors can be allowed to trade in currency futures,” said HR Khan, deputy governor, Reserve Bank of India, at a conference. “We are now flexible on residual maturity and lock-in period,” he said referring to restrictive norms for foreign funds in holding domestic bonds.
So far foreign investors could only hedge their currency risk through their authorised banks by buying forwards contracts and are not allowed to trade in currency futures on currency exchanges.
As of now, foreign investors have to hold the bonds for one to three years depending on the category of bonds and, in some categories, they cannot buy bonds below the maturity of three to five years. The investment ceiling for foreign investors in government bonds is $20 billion and $46 billion in corporate bonds.
The Government of India has introduced an additional limit of $5 billion each in government and corporate bonds to stabilise the Indian rupee that is being pummelled because of high imports and exports that shrank for the seventh straight month.
RBI is also considering to allow repo facility for commercial papers and certificate of deposits.