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Informist, Thursday, Aug 8, 2024

--RBI Patra: Major part of investors interest in 5-, 10-yr FAR papers
--RBI Patra: 90% of FAR holding in 5 to 10 year bonds
--RBI Patra: Focusing FPI holding in 5-, 10-yr FAR bonds to up liquidity
--RBI Patra: To review OIS limit for foreigners
--RBI Das: Global investor confidence on India is very positive
--RBI Das: FPI sentiment on India is very high

MUMBAI – Investment of foreign portfolio investors in India's fully accessible route bonds are concentrated in papers maturing in five to 10 years, Reserve Bank of India Deputy Governor Michael Patra said today. Even with the exclusion of the new 14-year and 30-year bonds from the framework, FPIs have plenty of options to choose from to invest in Indian government bonds, he said.

"It's not as terrible as it is made out to be," Patra said at a post-monetary policy press conference. "What will happen is that concentrating them (FPIs) into the 5-10 year segment will make it more liquid, better price discovery will occur, and transaction costs will fall as depth increases." 

The RBI notified last week that new issuances of 14-year and 30-year government bonds will no longer be eligible under the fully accessible route, which has no limits for investment by foreign portfolio investors. In RBI's assessment, around 4 trln rupees worth of fully accessible route bonds will be issued this year in the remaining categories, the deputy governor said.

Currently, FPIs hold 2.11 trln rupees worth of the 38 outstanding fully accessible route bonds, according to Clearing Corp of India data. FPI holding in the 13-year 7.18%, 2037 bond was barely 2% of its outstanding before the curbs came in, Patra said. Even under the medium-term framework, which has a limit of 6% of the overall outstanding, FPIs hold only around 2% of the outstanding government bonds, according to Patra. 

"We've observed that the major part of the interest of FAR investors is within the 5-10 year limit, it comes to 90% of the total," Patra said. 

The RBI has given FPIs enough time to readjust their portfolios amid India's inclusion in global bond indices, Patra said. India's bonds are being included in JP Morgan's Government Bond Index – Emerging Markets over 10 months, starting Jun 28. Indian bonds will be added to Bloomberg's emerging market local currency bond index over 10 months, starting Jan 31. 

Asked whether the curbs on FPIs would hit sentiment of foreign investors towards India, RBI Governor Shaktikanta Das said that India's strong macroeconomic fundamentals would continue to draw in investment from offshore.

"Our assessment is that global investors' confidence is very, very positive, so far as India is concerned, as reflected in the FPI and FDI (foreign direct investment)," the RBI governor said. "India's GDP growth is expected to be the highest among all major economies. Overall, international confidence in India remains intact."

Separately, Patra also said limits on non-resident investment in overnight indexed swap rates are constantly being monitored. Non-residents have an upper limit of overnight Mumbai Interbank Offer Rate-linked derivatives of 3.50 bln rupees, of which 3.38 bln rupees have been utilised as of Wednesday, according to Clearing Corp of India data.

"Also, remember that we are not open on the capital account fully, so this is part of that. We will review it as the overall limit is near," Patra said.

Das and Patra were addressing a press conference after the Monetary Policy Committee's three-day meeting. The rate-setting panel kept the policy repo rate unchanged at 6.50% and stuck to its stance of withdrawal of accommodation to ensure that inflation progressively aligns to the target, while supporting growth. End

Reported by Aaryan Khanna

Edited by Saji George Titus

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