“With the road fully accessible, efforts are being made to further liberalize REIT debt flows”: RBI Governor Dy

T Rabi Sankar, Deputy Governor of the Reserve Bank of India (RBI), at the 5th annual Indian Association of Foreign Exchange Traders (FEDAI) day, said on Friday that there was an effort to further liberalize flows of the REIT’s debt, with the introduction of the Fully Accessible Route (FAR). This, he said, places no limits on investments by non-residents in specified benchmarks.

He said that over time virtually all securities will fall into the FAR category, and the move is unambiguous towards eventual unimpeded access for non-residents to government securities.

“The efforts to include India in global bond indices and the complementary move to place G-secs under global depositories, once implemented, will encourage debt flows going forward,” he said. -he declares.

He said that with the road fully accessible, over time the entire G-sec show would be eligible for non-resident investment. “While the experience of other countries suggests that non-residents are unlikely to hold a significant portion of the outstanding shares, large debt holdings could make India vulnerable to the risk of sudden reversals,” he said. he declared.

Since this channel was cleared against the background of India’s G-sec inclusion in global bond indices, he said, there is a natural safety mechanism as index investors are unlikely to engage in sudden reversals.

“It may be necessary to consider from a macroprudential point of view whether the RBF should be linked to inclusion in the index,” he added.

He also said that since the LRS (Liberalized Remittance Scheme) has been operating for some time, it may need to be reviewed, keeping in mind changing requirements such as higher education for young people, the demands of start-ups, etc. could even be a case to examine whether the limit can remain uniform or can be linked to an economic variable for individuals, ”he said.

Sankar said that allowing Indian banks to access NDF (Non-Deliverable Forward) markets for the rupee is also in line with this goal. “While G-secs are held by global depositories and traded overseas, more and more non-residents are holding rupee assets and exposing themselves to rupees,” he said.

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According to Sankar, India has come a long way to achieve increasing levels of capital account convertibility. “He has largely achieved the desired result for the political choices he made, in terms of obtaining a stable composition of foreign capital inflows,” he said.

He said India was also on the cusp of some fundamental shifts in this space, with increased market integration on the horizon and freer non-resident access to debt on the table.

He said market players, especially banks, will need to prepare to manage changes in business processes and the global risks associated with convertibility of capital.

“The job of the regulator is somewhat different. As someone once said, the job of a regulator is like the gas regulator in the kitchen – it cannot guarantee the quality of the dish, but it can. prevent the kitchen from exploding, ”he said. .

Sankar said that “the quality of the dish – that is, the efficiency with which the country’s investment needs are met – depends on how the authorized dealers and other intermediaries adjust to the convertibility of more and more complete of the capital account “.

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