Govt to allow repo in corp bonds soon - finmin aide

NEW DELHI (Reuters) - The government may allow repurchase agreements (repos) in corporate bonds soon but there was no plan to raise foreign investment limit in bonds as of now, a finance ministry official said on Wednesday.

Deepening the bond markets to help firms raise much-needed capital is part of the financial reform agenda of the Congress Party-led coalition government, which was re-elected in April/May elections with a stronger majority.

In September, the central bank released the draft rules for introducing repurchase agreements in corporate bonds and sought public feedback by October 5.

K.P. Krishnan, a joint secretary at the finance ministry, said RBI may need to consult Securities and Exchange Board of India (SEBI) and Insurance Regulatory and Development Authority (IRDA) before finalising the rules as repos would be tradeable in exchanges and insurers may be investing in these instruments.

"I don't know when it will happen. But it will happen fairly soon," he told reporters after a conference.

The central bank has said it could allow investors to borrow short-term funds by pledging corporate bonds as collateral in a repurchase agreement ranging from one-day to one-year.

This could help them raise funds at a cost cheaper than bank loans especially at times when interest rates harden.

Krishnan said the foreign institutional investors (FIIs) limit in corporate bonds would not be further raised as of now.

"I can increase it when there is a demand. Now there is no demand," he said.