Dealers welcome RBI's move to deepen corp bond markets

MUMBAI Thu Jan 31, 2013 12:54pm IST

Related Topics

MUMBAI (Reuters) - The RBI's move to allow standalone primary dealers (PDs) to obtain funding and invest more in corporate bond markets is expected to increase volumes in a priority market for the Indian government, according to executives.

The move, announced by the Reserve Bank of India late on Wednesday, comes as India looks to deepen its corporate bond markets to meet the funding needs of domestic companies.

The RBI on Wednesday allowed PDs to borrow up to 50 percent of their net owned funds (NOFs) in overnight call money markets for investment in corporate bonds.

RBI uses NOFs to calculate the funds available at primary dealers by deducting certain variables such as deferred revenue spending or intangible assets.

Previously PDs were not allowed to do so in call markets, though they were able to borrow up to the same amount in money markets of other maturities.

They can also borrow up to 150 percent of net owned funds as of the end of March of the preceding financial year through Inter Corporate Deposits, or unsecured loans extended from one company to another.

The new limit is double of the previous one.

"In the absence of corporate bond repo funding, the permission to use call money to fund corporate bond books will help PDs to carry a larger book, which in turn will aid in market-making in corporate bonds," said Pradeep Madhav, managing director at STCI Primary Dealership.

Primary dealers can also invest up to 10 percent of its total capital funds in tier II bonds issued by other PDs, banks and financial institutions.

The new measures comes after the central bank relaxed some of the rules for foreign institutional investors (FIIs) buying into domestic debt as part of the government's long-expected $10 billion increase in corporate and government debt limits.

Earlier this month, the RBI also allowed securities with less than one-year maturity to be included as underlying securities for repo borrowings in corporate bonds and credit default swaps (CDS).

(Reporting by Archana Narayanan; Editing by Rafael Nam and Anand BAsu)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Diplomacy

REUTERS SHOWCASE

Maruti Results

Maruti Results

Maruti Suzuki says profits helped by sentiment, not growth.  Full Article 

Tracking the Monsoon

Tracking the Monsoon

Monsoon turns patchy after revival.  Full Article 

ICICI Profit Up

ICICI Profit Up

ICICI Bank Q1 net profit up 17 percent, beats estimates.  Full Article 

Pharma Sector

Pharma Sector

FDA raises concern over drug production process at Cadila  Full Article 

Coal India

Coal India

Some Coal India mines may be run by foreign firms - minister  Full Article 

Fuel Prices

Fuel Prices

IOC to cut petrol prices by 1.5 pct from Friday  Read 

Economic Pulse

Economic Pulse

India's infrastructure output growth hits 9-month high in June  Full Article | Related Story 

Joint Bid

Joint Bid

ONGC, Oil India bid $1.5 bln for stake in Murphy Oil's Malaysia assets - sources  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage