The Reserve Bank of India (RBI) may soon allow repo trades between market players through Certificate of Deposits (CDs) and Commercial Papers (CPs). “Given that not much of transaction happen and also that there is a demand, we will allow repo in CDs and CPs,” said HR Khan, deputy governor of RBI at CII event on Wednesday.
Khan also said that the government is expected to notify on reducing withholding tax on rupee-denominated infrastructure bonds soon. Besides that the RBI was also considering whether foreign investors can be allowed to participate in currency futures trading.
RBI is also in talks with market players and the government to develop Credit Default Swaps (CDS) market, said Khan.
“Household savings are dipping including bank deposits and in equities,” said Khan. Khan is also of the view that there are worries about India's external sector vulnerability.
According to Khan RBI has gradual approach to capital account liberalisation and liberalising trade than capital account more important for the RBI.
Khan believes that after Basel 3 norms come into the force the bank’s will be constrained to expand loan book so there's a need of thriving corporate debt market. The infrastructure sector has been reeling under lack of funds. According to Khan corporate bond market growth is necessary to fund this growth.
There is another suggestion to make corporate bond market thriving that is loans should be also mark to market. There are lots of complications involved in it said Khan. “There is no loan market. It is easier said than done to say that have mark to market loans so that corporate debt market will develop because they are subject to mark to market.”