Gilt investment cap for FIIs would be raised in due course:RBI

Seeking to assuage foreign investors' concerns on caps in government bonds, Reserve Bank Governor Raghuram Rajan today said there is a roadmap for expansion but appetite of foreign investors will not be a deciding factor.
"We have in mind a schedule for expansion, so that it is consistent with our ability to absorb that kind of capital. I'd say don't despair, we will expand the limits, but it has to be not at the pace that the market wants, but as per our ability to absorb the kind of inflows that will come in," Rajan said during the post-policy call with analysts.

The country had last expanded the foreign investment limit in G-secs in July by USD 5 billion to USD 25 billion, and reports say the yield-chasing investors have already exhausted a bulk of the new addition.
Citing the recent case of a bond issuance by state-run telephony player MTNL which saw higher interest from foreign investors, Rajan said this is because the troubled company's bond issue was looked at as a quasi-sovereign instrument.
Meanwhile, deputy governor HR Khan said the RBI has also come across investments by the foreign investors into the G-secs in "indirect" way, wherein they are using the debt and liquid mutual funds to enter G-secs as also short-term debt like commercial papers and certificates of deposits, which is not allowed at all.

However, he said the quantum of these investments is not very large and the RBI is watching the situation.

"We are keeping a watch. If it becomes substantial, we will be taking action," he warned.
On the inflation indexed bonds (IIBs), which were re-launched last year to garner greater amount of financial savings, Khan said there is a move to redesign the product for institutional investors.
For retail investors, Khan acknowledged that other instruments like the recently introduced Kisan Vikas Patras are there, but stressed that IIBs still hold value in a portfolio.
On the banks' high appetite towards lending to the recession-proof retail segment, Rajan said the RBI brass has repeatedly expressed concern over the industry not getting the the required amount of credit.

"Lending to retail cannot be seen as a new panacea, I think banks are taking cognisance," Rajan said, hoping that banks will start pushing credit to corporates once the demand picks up.