May look to prune fully accessible gilts more in future - govt source
Informist, Tuesday, Jul 30, 2024
By Priyasmita Dutta and Sagar Sen
NEW DELHI – The Reserve Bank of India may look to prune the number of government bonds in the list of bonds eligible under the Fully Accessible Route in future, a senior finance ministry official said. There is no hurry and the RBI will take a call on it when the need arises, the official said.
The RBI on Monday notified that new issuances of 14-year and 30-year government bonds will not be eligible under the Fully Accessible Route, which has no limits for investment by foreign portfolio investors.
"Right now there is no volatility in the markets, but we would rather take steps when things are normal than when things are beyond our control," the official told Informist, explaining the rationale for the decision.
Currently, there are 38 government bonds maturing between 2024 and 2053 under the fully accessible route. The current 30-year benchmark 7.30%, 2053 bond is the one with the highest remaining duration among these securities.
The finance ministry has been discussing the matter with the regulator, which acts as a merchant banker for the government, to exclude government securities from the fully accessible route in order to control volatility in the market, the official said.
"Fully accessible route is a very important tool that can be used as a lever in the system, to control volatility. This will help when there is volatility in the market," the official said.
Full accessibility was a key factor that enabled the inclusion of Indian bonds in global bond indices as it facilitates ease of investment and trading.
Investment by foreign portfolio investors in new 14- and 30-year bonds can continue using the voluntary retention route and the medium-term framework for foreign investment, the RBI had said. Current norms for 2024-25 (Apr-Mar) allow FPIs to hold 6% of the total outstanding stock of government bonds.
Market participants believe that the measures announced on Monday will protect returns for domestic long-term investors such as life insurers and pension funds.
On Jun 28, JP Morgan added 29 bonds under the fully accessible route for inclusion in the Government Bond Index – Emerging Markets suite. Bonds available under the fully accessible route do not have any restriction on the extent of permissible foreign investment.
India's inclusion in the JP Morgan index will be staggered over 10 months. A similar exercise will start with the Bloomberg local currency emerging markets index from Jan 31. Since the inclusion was first announced in September, FPIs have bought around $13 bln worth of gilts under the fully accessible route. Analysts expect around $30 bln of inflows from index-related purchases alone in the current fiscal year. End
