The Reserve Bank of India has written to the Finance Ministry to put a cap of $3 billion for settlement of Indian debt on Euroclear, the world’s largest securities settlements system. India is close to allowing sovereign wealth funds to settle government bonds on Euroclear to widen the Indian debt market and attract more visibility from large portfolio investors.
“To start with, a cap of $3 billion can be imposed on settlement in debt securities on the Euroclear platform,” the RBI has suggested to the Finance Ministry, a senior finance ministry official said.
The foreign investors have been calling for India to join Euroclear to make it easier for them to access Indian debt. However, the central bank has also suggested that settlement should be allowed to “long only” investors on Euroclear, the source said. This means that RBI is not in favour of foreign institutional investors settling Indian debt on Euroclear.
Brussels-based bond settlement network provides securities settlement services to around 90 countries. The Indian Government is working on the legal framework, which allows foreign entities to buy and sell rupee-denominated debt without having a local brokerage account.
Finance ministry officials and the Securities and Exchange Board of India met FIIs last week to discuss feasibility of listing Indian debt on Euroclear, the world’s biggest bond settlement system.
HR Khan, Deputy Governor, last week said that to start with only settlement of Government bonds would be allowed on the international system.
When asked about whether the RBI is looking for further liberalising the external commercial borrowing (ECB) window, Khan said the bank had been cautious and it could not fully liberalise the route.
“We cannot open (the ECB window) fully given the current situation. Bank for International Settlements has come out with a paper on how currency mismatches can create issues. If we open up too much, with people who don’t have underlying currency to support that, then there is a problem,” Khan said.
Market analysts believe that joining Euroclear will allow foreign funds greater ease in trading in Indian securities offshore. It will also eventually help in getting India on to global domestic currency bond indices.
The Union Budget for 2014-15 (Apr-Mar) had proposed to allow international settlement of debt securities, in a bid to facilitate the listing of these securities on Euroclear. In July, Finance Secretary Arvind Mayaram said that Euroclear had agreed on clearing Indian debt securities.
Meanwhile, RBI is also exploring opportunity with Clearstream, another settlement gateway for Indian bonds.