The Reserve Bank of India (RBI) is not considering to hike foreign institutional investment cap on government securities despite the limit always being exhausted.
“Right now there is no such discussion,” RBI deputy governor Khan said this when asked if the FII limit in government bonds would be raised.
At present, FII investment limit in government bond is capped at $30 billion, including $20 billion for all and $10 billion for specific investors like foreign central banks, sovereign wealth funds, pension funds and insurance funds.
The limit of $20 billion has been almost exhausted following an auction of the residual Rs 7,152 crore on Wednesday.
As per agency reports, the limit under $20 billion has been fully exhausted following an auction of the residual Rs 7,152 crore on Wednesday.
Separately, Khan also said the government and the central bank is in discussion to revamp inflation index bonds in order to make it more attractive for retail investors.
RBI had launched the consumer price inflation linked inflation indexed bonds under the name of Inflation Indexed National Savings Securities-Cumulative (IINSS-C) in December. Initially the subscription was open till December 31 but later extended due to poor response.
"We had launched inflation indexed bonds that were not successful. We are coming out with the revised version," Khan said at the sidelines of an event.
He said that timing of the inflation indexed bonds launched last time was not possibly right and there were issues regarding understanding of the product and also related to interest pay out.
"We have suggested few things to the government. One, in terms of increasing the spread and whether we can have non-cumulative option. They (government) are considering, let us see," Khan said.
He said that the central bank was looking to offer quarterly interest pay out unlike last time when the payout was only on maturity.
Khan, however, did not give any timeline for the launch of the revise inflation indexed bonds.
The deputy governor also indicated that the central bank will kick off the differentiated bank licence process by releasing norms on payment bank.
”Many are disappointed that RBI has issued only two universal bank licences... but we will soon be coming out with new guidelines and the licensing will not be a window where everyone will have to rush at the same time,” Khan said.
“We will shortly be coming out with a payment bank which has been recommended by the Nachiket Mor committee…will also put out framework for differentiated bank licensing soon,” he added.
Payments banks, as suggested by the Nachiket Mor committee on financial inclusion, are entities that will not focus on lending, instead will concentrate on offering payment services and deposit products to small businesses and low-income households. The committee had recommended that these banks should be restricted to holding a maximum balance of Rs 50,000 per customer and should not be permitted to assume any kind of credit risks.
Since the risk of default at these banks are near-zero, the Mor panel had suggested that the minimum entry capital for them must be set at Rs 50 crore, instead of Rs 500 crore required for full-service scheduled commercial banks.
