The Reserve Bank of India (RBI) isn’t considering an increase in the foreign institutional investment (FII) cap on government securities, despite the limit always getting exhausted.
“Right now, there is no such discussion,” RBI Deputy Governor H R Khan said, when asked if the FII limit in government bonds would be raised. This limit is $ 30 billion at present, of $ 20 billion for all and $ 10 billion for specific investors such as foreign central banks, sovereign wealth funds, pension funds and insurance funds. The $ 20-billion limit was almost exhausted following an auction of the residual Rs 7,152 crore on Wednesday.
Separately, Khan said the government and the central bank were in discussions on how to revamp inflation-indexed bonds to make it more attractive for retail investors.
RBI had launched consumer price inflation-linked bonds under the name of Inflation Indexed National Savings Securities-Cumulative (IINSS-C) in December. Initially, the subscription was open till December 31 but was later extended due to poor response. “(The launch) was not successful. We are coming out with a revised version,” Khan said at the sidelines of an event.
He said it was possible the timing of the launch hadn’t been right and there were issues regarding understanding of the product and related to the interest payout.
“We have suggested a few things to the government. One is in terms of increasing the spread and whether we can have a non-cumulative option. They (government) are considering; let us see,” Khan said.
He said the central bank was looking to offer a quarterly interest payout, unlike earlier when the payout was only on maturity. Khan, however, did not give any timeline for launch of the revised inflation-indexed bonds.
Mor report action
He also indicated RBI would start the differentiated bank licence process by issuing norms on payment banks. “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.
Adding: “We will shortly be coming out with a payment banks (norm), recommended by the Nachiket Mor committee…will also put out a framework soon for differentiated bank licensing.”
Payment banks, as suggested by the Mor committee on financial inclusion, are to be entities that would not focus on lending. Instead, they’ll concentrate on offering payment services and deposit products to small businesses and low-income households. The committee had recommended these banks should be restricted to a maximum balance of Rs 50,000 a customer and should not be permitted to assume any kind of credit risk.
Since the risk of default at these banks would be near-zero, the panel had suggested the minimum entry capital for these be set at Rs 50 crore, instead of the Rs 500 crore for full-service scheduled commercial banks.