RBI unveils more measures to deepen trading in bond market

To boost trading in bonds, RBI today said it will gradually lower the ceiling on government securities that can be held-to-maturity (HTM) by banks to 22 per cent, from 24 per cent, beginning January.

The apex bank also announced it will extend the period that foreign investors can settle their over-the-counter government bonds to two days of their trade from one.
The measure, traders said, could be aimed at facilitating the settlement of debt in the Euroclear platform to which India is planning to join soon.

Announcing the monetary policy, the central bank said it will cut the ceiling on HTM bonds from the current 24 per cent to 22 per cent in stages, starting in the two-week cycle from January 10, 2015.

Commenting on this, SBI Chairperson Arundhati Bhattacharya said the calibrated cut in HTM ceiling to 22 per cent by September 15 is a welcome and non-disruptive move.
Bank of India head V R Iyer said: "The guidelines for cut in HTM, spread over one year beginning January 2015, are a welcome step as it removes uncertainty on this issue. Banks can now better plan dilution from HTM."

Federal Bank MD Shyam Srinivasan said the move to bring down the ceiling on SLR securities under the HTM category will deepen the bond market.

The action could prompt banks to trade debt actively as it will reduce the incentive of parking securities until maturity and force them to mark more securities to market on a daily basis, leading to potential gains or losses, he said.

RBI also doubled the limit for some importers hedging currency exposure to 100 per cent of their average turnover over the previous three years or the preceding year's import revenue, whichever is higher. The previous limit was at 50 per cent.

Further, the apex bank announced several steps related to trading in G-secs, including relaxing rules for short- selling, and said it would continue injecting funds via one- day term repos, or cash-for-loans transactions, to keep money markets less volatile.

RBI allowed banks to include government bonds held by them up to another 5 per cent of their NDTL (net demand and time liabilities) within the mandatory SLR requirement as level 1 quality liquid assets (HQLA) to facilitate their meeting the LCR requirement.