Second Quarter Review of the Monetary Policy for 2011-12
-Announced on the 25th October 2011
Part B. Developmental and Regulatory Policies
II. Financial Markets
Financial Market Products
Interest Rate Futures
67. In pursuance of the announcement made in the Second Quarter Review of November 2010, exchange traded interest rate futures (IRFs) on 91-day Treasury Bills with cash settlement in Indian Rupees were permitted with effect from March 2011. It was indicated in the Monetary Policy Statement of May 2011 that the guidelines for 5-year and 2-year IRFs were being finalised in consultation with the Securities and Exchange Board of India (SEBI). Accordingly, it is proposed:
to issue the final guidelines on the cash settled 5-year and 2-year IRFs, including the final settlement price by end-December 2011.
Introduction of Credit Default Swaps
68. As announced in the Monetary Policy Statement of May 2011, the final guidelines on credit default swaps (CDSs) for corporate bonds were issued in May 2011 with the indication that they would be launched once the necessary market infrastructure was in place. Accordingly, it is proposed:
to make the guidelines on CDS effective by end-November 2011.
Review of Short Sale in Government Securities
69. It was indicated in the Monetary Policy Statement of May 2011 that with a view to providing a fillip to the IRF market and the term repo market, the period of short sale would be extended from the earlier limit of five days to a maximum period of three months. The existing reporting mechanism for short sale is being revised. It is proposed:
to issue guidelines on short sale in government securities by end-December 2011.
Extension of DvP III Facility to Gilt Account Holders
70. It was announced in the Monetary Policy Statement of May 2011 to extend delivery versus payment (DvP) III facility to transactions by the gilt account holders (excluding transactions between the gilt account holders of the same custodian) so that the gilt account holders get the benefit of efficient use of funds and securities. The final guidelines were issued in July 2011.
Financial Market Infrastructure
Working Group on the G-Sec and Interest Rate Derivatives Markets
71. The various reform measures initiated since the early 1990s have resulted in the development of a robust government securities market that is able to meet the funding requirement of the Central and State Governments in an efficient and transparent manner. However, there is a need to further broaden and deepen the market for government securities and the allied derivatives. Accordingly, it is proposed:
to set up a Working Group comprising representatives from various stakeholders to examine and suggest ways for enhancing secondary market liquidity in the G-Sec and the interest rate derivatives markets.
72. Details of the Working Group will be announced separately.
Committee for Review of Procedures relating to Facilities to Individuals – Residents/NRIs and PIOs
73. It was indicated in the Monetary Policy Statement of May 2011 that a Committee (Chairperson: Smt. K. J. Udeshi) was constituted by the Reserve Bank to identify areas for streamlining and simplifying the procedure so as to remove the operational impediments, and assess the level of efficiency in the functioning of authorised persons, including the infrastructure created by them. The Committee submitted its report in August 2011. The recommendations of the Committee were examined by the Reserve Bank. Some of the recommendations of the Committee, which have already been implemented, are: (i) permission to non-resident Indians (NRIs) to be joint holders in resident bank accounts; (ii) permission to residents to be joint holders in non-resident (external) Rupee account (NRE) scheme/foreign currency (non-resident) (FCNR) account (banks) scheme; (iii) permission to residents to gift shares/debentures up to US $50,000 to non-residents; (iv) sale proceeds of foreign direct investment (FDI) allowed to be credited to NRE/FCNR (B) accounts; and (v) permission to residents to repay loans given to NRIs’ close relatives, as also bear medical expenses of NRIs. Other recommendations of the Committee are under examination.
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