Mint Road considering index-linked bonds float

The Reserve Bank of India (RBI) is considering floating index-linked bonds and granting limited exclusivity in primary issuances of government securities to primary dealers, RBI deputy governor Rakesh Mohan said.

He was addressing the fifth FIMMDA-PDAI annual conference held in Dubai over the weekend. While applauding the progress made in the government securities market, he said the RBI will continue with further consolidation in the government debt market with greater responsibility being given to primary dealers for retailing and market making for gilts.

The RBI had mobilised around Rs 704.52 crore through the first ever five-year capital indexed bonds 2002 launched in December 1998. The capital-indexed bonds were tradable and eligible for repo facility.

The major thrust of the meeting was the development of the corporate bond market to which Mohan added that the passage of the fiscal responsibility and budget management Act will be a shot in the arm.

This is because, following this, banks will be forced to look for other investment avenues as this Bill is aimed at reducing the deficit and thus leaning down the market borrowing which ultimately will result in reduced availability of gilts.

Moreover, with term lending from financial institutions on decline and higher demand for funds in infrastructure expected to pick up, corporates would have to look for funds from market.

However he reiterated the fact that unlike in case of government securities , the RBI will have to focus attention on protecting investors' interest through creating risk free clearing and settlement systems. In case of government securities, RBI being the issuer of the paper, problems are much less.

Among the measures which are being contemplated, Mohan said that the repo market would be widened to include corporate entities to participate with adequate safeguards.

The RBI is in the process of issuing the guidelines on the sale of securities purchased previously to take care of price risk, roll over of repos, DVP III mode of settlement and anonymous order driven trading system on public debt offices-negotiated dealing system to usher in transparent trading process.

He added that the implementation of real time gross settlement system was critically poised to start soon.