RBI Governor Lauds Encouraging Response To Regulatory Measures But Highlights Need For Attention In Specific Areas

The recent financial market reforms undertaken by the Reserve Bank are aimed at providing a strong bedrock for markets to move to the next trajectory for meeting the growing funding requirements in the economy, providing cost effective hedging options and competing effectively in global markets, RBI Governor stated at the FIMMDA-PDAI Annual Conference, Barcelona. He said the response to the regulatory measures has been encouraging. The participation base has been widening. Retail participation in G-secs through the Retail Direct scheme has been growing. The VRR scheme has attracted interest from FPIs, especially for corporate bonds. In recent months, robust foreign inflows in G-secs have been witnessed. Non-resident participation in OTC derivative markets has increased, adding to liquidity and diversity. Many of you have started participating in the offshore derivative market for the INR. Prices and spreads in the domestic and overseas markets have converged to a great extent. There are, however, some areas which call for attention, he noted.

Governor Das said participation of domestic banks in derivative markets remains limited with only a small set of active market-makers. Participation of Indian banks in global markets is growing but it is quite small. Domestic banks are dealing with market-makers in global markets rather than with end clients and are yet to emerge as market-makers of note globally. Liquidity in OTC derivatives markets, especially interest rate derivatives, remains confined to a few products, constraining efficient hedging by the larger economy. Transparency in pricing remains work in progress and more can be done. Efforts are being made to leverage technology for achieving greater efficiency while also meeting the objectives of market reforms, he added. Bank treasuries need to scale up their dynamism to utilise the opportunities presented in the context of the recent regulatory reforms and appropriate safeguards should be put in place to address the new challenges posed by new products, participants and markets.

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