RBI rules out simpler norms for bonds

Financial Stability Development Council won’t affect independence: Thorat.

The Reserve Bank of India (RBI) today ruled out giving more headroom to banks to deal with the rise in bond yields despite the marginal rise in Centre’s gross borrowings.

RBI Deputy Governor Usha Thorat said the central bank was not looking at raising the ceiling on bond holdings in the hold-to-maturity (HTM) segment or increasing the statutory liquidity ratio (SLR) beyond 25 per cent.

At present, banks are allowed to keep up to 25 per cent of their bond holdings in the HTM category. These are not subjected to marked-to-marked accounting rules. Due to large government borrowings during the current financial year, banks had exhausted their HTM ceiling and had sought a relaxation from RBI.

The government’s gross borrowings for 2010-11 are budgeted at Rs 4,57,143, as against Rs 4,51,000 crore this year.

Thorat, however, did not elaborate on how the government and RBI planned to structure the borrowings to reduce the impact on the bond market and private sector fund-raising.

Thorat said she did not want to “conjecture on the nature of instruments” that would be used for raising funds.

She, however, added that RBI’s major concern would be to manage price stability and deal with the government's market borrowing programme.

On the Financial Stability Development Council, which would be on the lines of the High-Level Co-ordination Committee, which is headed by the RBI governor, Thorat said: “The financial crisis has taught everybody that there is a systemic risk which has to be taken care of by an authority which is cross-regulatory... This council will not impinge on the autonomy or independence of the regulator but will monitor the sytemic risk in the system.