Skip to main content

RBI may Ease Disclosure Norms for Transfer of State Bonds

The Reserve Bank of India is likely to ease the rules governing disclosure of transfer of bonds among various categories in the portfolios of banks. This could lead to a surge in the treasury income for banks. The central bank may say that banks need not disclose the transfer of state bonds from the held-to-maturity (HTM) category to the available-for-sale (AFS) segment, said a person with direct knowledge of the matter.
The RBI didn’t respond to an email seeking comment until publication of this report. Banks will also get to shift more of state loans which are in the HTM category to AFS — which means an increase in liquidity as these bonds carry higher coupon rates. This will also help state governments buy back bonds if they want to cut their borrowing costs in falling interest rate regimes. The matter was discussed in a meeting held between the RBI and state finance secretaries a week ago.
The RBI had proposed a rulebased approach in fixing new ways and means limits for state governments, replacing the previous expenditure-based system, ET reported on March 18. It was a proposal mooted during governor Shaktikanta Das’ meeting with the finance secretaries of 25 states and Puducherry. Issue of state bonds, known as state development loans (SDL) in market parlance, is expected to increase to Rs.4.3 lakh crore in FY20 from Rs.4 lakh crore in FY19, according a note by PhillipCapital India. Net-net, supply is higher in FY19-20.
Disclosure Norms
Total outstanding state bonds are more than Rs. 23 lakh crore. State bond yields are offering 75-85 basis points higher than the central government debt securities. “If banks are allowed to transfer state bonds from HTM to AFS without any disclosure, they should increase the stock of such bonds available for secondary market trading,” said a senior executive from a large bond house, who did not wish to be named. The differential between state and central government bonds should continue to compress until fiscal year end before it expands in the new financial year on higher supply, the person said.
This makes a 'buy' case for investors for now. The differential was as high as 110 basis points threefour weeks earlier, prompting investors to book mark-to-market profits with falling yields. Bond yields and prices move in opposite directions. State government bonds have of late assumed importance as such debt papers, which are now voluminous, can change market dynamics. “SDL crowds out corporate borrowings in the bond market by increasing costs,” BP Kanungo, deputy governor of the RBI, said in a note in September last year. A one-percentage point increase in the ratio of state debt issuance to GDP will result in an 11% decline in the volume (in rupees) of corporate bonds issued in FY16, he said.
The Economic Times, 22nd March 2019

Comments

Popular posts from this blog

GST Refund of Rs 20,000 Cr Pending: Exporters’ Body

GST Refund of Rs  20,000 Cr Pending: Exporters’ Body Refund of over Rs 20,000 crore on account of Goods and Services Tax (GST) is pending with the government with more than half the amount stuck as input tax credit, Federation of Indian Export Organisations said on Tuesday. While claims over Rs7,000 crore were cleared in March, the amount was Rs 1,000 crore in April.However, after exporters’ request, the GST council and tax department are organizing a second phase of Special Refund Fortnight starting May 31, which will enable exporters to draw their refunds at a speedy pace. Many exporters have been unable to file the refund of input tax credit due to technical glitches, exports and claim happened in different months. The major challenge lies on ITC refund especially because the process is partly electronic and partly manual which is cumbersome and add to the transaction cost, the exporters’ body said. On IGST, refunds are getting delayed due to airline and shipping companies not submitt…

RBI rushes in to prop up falling rupee

RBI rushes in to prop up falling rupee India’s central bank reportedly intervened in the currency markets on Monday to prevent a further slide in the local unit, which breached the 67 mark to a dollar for the first time in 15 months amid a widening trade gap and runaway import bills fuelled by high crude-oil prices. Some state-owned banks were seen selling dollars aggressively, interventions that market dealers attributed to the central bank’s strategy to stem the decline of the Indian rupee against the US currency. The rupee is the worst performing among a dozen Asian monetary units in the past three months. It lost 4.25 per cent to the dollar during the period, show data from Bloomberg. On Monday, the Reserve Bank of India (RBI) is said to have sold about Rs 800 million collectively on the spot and exchange traded futures markets, dealers said. An email sent to RBI remained unanswered until the publication of this report. The currency market has seen such a strong central bank interven…

SC order on RBI circular: More options for banks to tackle defaulting firms

Lenders also have the option of restructuring the loans Lenders to companies which are under stress could now have three options to deal with them if they default on loans: take a haircut as part of a one-time settlement, restructure the loans for a longer tenure as they did when corporate debt restructuring schemes were allowed, or go to the Insolvency and Bankruptcy Code (IBC) for redress. These changes in the options available to lenders come, according to PE funds and bank lawyers who are involved in the IBC process, in the wake of the Supreme Court on Tuesday setting aside the 12 February RBI circular, which allowed a 180-day window to banks to resolve a company default.But they can still find a resolution. According to a Reserve Bank of India circular, a loan becomes a non-performing asset when banks cannot find a way of recovering their money in 90 days. In short, banks still have a window to resolve the default. Lenders can take a haircut as part of a one -time settlement of du…