Foreign players to get nod for offshore G-secs: RBI annual report

"This would open up a new channel for non-residents to undertake transactions in central government securities," the RBI Annual Report said

In its annual report released on Thursday, the Reserve Bank of India (RBI) said it would allow international settlement of central government securities by International Central Securities Depositories (ICSDs) to permit non-residents to transact in central government securities offshore. 

“This would open up a new channel for non-residents to undertake transactions in central government securities,” the annual report said.  ICSDs, such as Clearstream, Euroclear and SIX SIS allow a foreign investor to invest in bonds of country, without going through the local mechanism. Such clearing houses can be linked with domestic clearing agencies and link up with local systems. 

Such a mechanism is in the making for the past few years, but not much has happened so far, pointed out bond dealers. 

For example, in India, to transact in a government bond, the investor will have to seek permission to be able to trade, open accounts with the RBI-authorised clearing agencies, etc. 

Foreign investors may not want to go through such a route. But, allowing such transactions through ICSDs can be hassle-free. This is likely to increase the investor base and may help the government borrow more, even without going offshore. 

This is because, as the investor base increases, the government can issue more paper without impacting the existing demand. 

According to a senior treasury head of a foreign bank, this is not a major move and is unlikely to change the bond market fundamentals much.  However, the volume could grow over time. 

Bond dealers also said this had not much to do with India’s sovereign bond issue plans, and the foreign investors’ limit would still be within the overall cap set by the RBI.