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    RBI looking to deepen the financial markets with new products

    Synopsis

    RBI is looking to deepen the financial markets with new products and liberalise some of the existing rules to accommodate more overseas investors.

    ET Bureau
    MUMBAI: The Reserve Bank of India is looking to deepen the financial markets with new products and liberalise some of the existing rules to accommodate more overseas investors.

    “We are undertaking the review of all regulations governing markets to see where there is scope for further liberalisation once macroeconomic uncertainty diminishes,” RBI Governor Raghuram Rajan said on Tuesday. “We are also doing a deep scrutiny of all our past regulations to prepare a greatly simplified list of master circulars.”

    Some of the relaxation of rules may come in the areas such as credit default swaps and trading of rupee in the non-deliverable forward market. “We will facilitate overseas investors who have got exposure to Indian rupee to have access to the hedging market, Deputy Governor HR Khan said. “We will also look at further relaxation in the regulations to see that there are more reforms in the market and more hedging products.” According to Khan, RBI wishes to see that more hedging happens onshore.

    The central bank proposed to allow local entities to sell rupee-denominated bonds offshore. It has framed the design features and sent it to the government for its views. “As they communicate their views, we should be able to put out guidelines,” Khan said.

    RBI had already relaxed the rules for domestic participants in the exchange-traded currency derivatives market by increasing its position limits and easing documentation requirements for importers and exporters. The new position limit is pegged at $15 million per exchange in the dollar–rupee pair, up by $5 million.

    The central bank on Monday said that banks will be allowed to buy infrastructure bonds issued by other lenders only up to a maximum value of 2% of the purchasing bank's tier-1 or core equity capital. “We gave a small limit to ensure this does not become a mutual financing. It is more a facility for them to trade and increase liquidity in infrastructure bonds,” Rajan said.

    Rajan has insisted on RBI’s role in bringing down volatility, not to set any exchange rate. The governor exuded confidence on the foreign exchange reserves amid global market volatilities. The reserves now stand at over $350 billion against $280 billion in May 2009.


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