Rajan’s parting gift to the Indian corporates & banks…

As he steps down from the RBI Governor post, Raghuram Rajan takes bold decisions to encourage corporate bond markets and make funds more accessible to Indian banks. In a fresh set of guidelines, RBI has now allowed banks to issue ‘masala bonds’ which are ‘rupee denominated bonds’ to raise money from overseas markets. “These are measures intended to further deepen market development, enhance participation and facilitate greater market liquidity”, RBI release said

What this means is, that banks that are often starved for funds will now have option of accessing offshore markets to fulfill their liquidity requirements. “These will constitute for additional tier I and tier II capital for lenders”, said RBI in a statement. RBI has added that such overseas bonds can also be issued to finance infrastructure and affordable housing.

Next up is the amendment that will enable RBI to accept corporate bonds under LAF or liquidity adjusted facility, which is a tool that banks use to adjust day to day mismatch in liquidity. So banks will be able to pledge corporate bonds as collateral while borrowing funds from its overnight repo window. “To promote development of the corporate bond market, following emerging international practice, RBI is actively considering corporate bonds as eligible collateral for liquidity operations”, said RBI in a statement.

Another big decision is to allow market brokers to trade in corporate bond repo market. Brokers authorized as market makers will now participate in corporate bond repo market to meet funding needs. In what will benefit small investors is that RBI has removed restrictions on Government securities transfer and now seamless transfer will be allowed between depositories and RBI will be allowed.

“This should promote retail participation in the market by facilitating participation by small investors in primary as well as secondary markets”, RBI said in a statement
With these reforms for banking and markets, consumers are next in line. Topping the agenda for the RBI is now to roll out of Unified payment interface scheme envisioned by Rajan, to enable online transactions by consumers.

Credits India Today

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