Raghuram Rajan To End RBI Tenure With Signature Reforms

BENGALURU: With Raghuram Rajan’s tenure as the Reserve Bank of India (RBI) governor coming to an end, it appears he has given the Indian economy a much needed boost. Changes announced by the body aims to widen India’s corporate bond market while eliminating the risk of banks' large non-tradable exposures to a particular group.  Changes involve, staggered reduction of loan exposure that banks have, increased participation allowed that overseas investors are allowed to make in corporate bonds, and making top-rated bonds eligible for loans from RBI for their liquidity needs.

Apart from this, banks can also take overseas rupee-denominated long-term bonds to shore up their falling capital and financing infrastructure and affordable housing. Brokers are now allowed to participate in the corporate bond repo market so that the market has a wide reach. RBI has also raised the partial credit enhancement limit from 20percent of the bond issue size to 50percent, given that no single bank exceeds a fifth of the total and the extant exposure limits.

"The measures will help markets attain more maturity," Shashikant Rathi, head of treasury at Axis Bank, told ET. "The dependence on bank credit will now come down significantly with lower-rated corporates getting access to the corporate bond market. The long wait for a deepened corporate bond market may come to an end." 

 "The increase in ceiling for partial credit enhancement will improve credit ratings for bond issuers," said Jayesh Mehta, country treasurer at Bank of America Merrill Lynch. "The corporate bond market will see more issuers coming in as borrowers are now mandated to tap the market meeting credit need beyond a stipulated limit." The steps are in line with the HR Khan committee's recommendations. "These measures are intended to further market development, enhance participation, facilitate greater market liquidity and improve communication," RBI said on Thursday. 

RBI has also proposed that Foreign Portfolio Investors (FPIs) be allowed to access the market without brokers; for which market regulator Securities & Exchange Board of India has given its approval. In order to align bank exposure norm with global standards and reduce risks of business concentration; RBI has proposed to put a limit on banks' large exposure limit to 20percent and 25percent of tier-I capital in respect of each counter party and group of connected counterparties. Earlier, these limits were capped at 15 percent and 40 percent of capital funds.

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