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Economy

RBI Board Meeting: FII Limits Could Be Raised, NBFCs Might Aggregate Financial Data

Foreign Investor limits on Indian Government bonds might be raised, according to Raghuram Rajan, the RBI Governor, the Hindu reported. But this will be done after consulting SEBI and there’s hardly any time frame provided.

Currently, RBI has all sorts of restrictions on foreign investments:

  • They can’t buy more than $25 billion worth of government bonds
  • And that too only with 3 year residual maturity (so no short term paper)
  • And then also, when holdings reach 90% of the limit, there are auctions in which they have to bid to buy allocations for the remaining
  • They’ve paid as much as 0.8% for such limits (which means their effective yield comes down correspondingly)
  • And then they have $5bn as a special limit for certain kinds of investors (sovereign wealth funds etc)
  • All these limits are in dollars, but converted to rupees at a rate that is historical. Currently they use about Rs. 50 to a dollar so the limits are Rs. 125,000 cr. (if they used the 63 value that the rupee is at currently, the limit would be more than 150,000 cr.)

Foreigners own just 3% of the total debt issued by the government and they have maxed their limits. I don’t know what the RBI is scared of. We need to ease these issues.

Aggregators for Bank Account Statements

There’s another part that is interesting in the RBI statement:

The Governor also announced that the Reserve Bank will put in place a regulatory framework to allow a new kind of Non-Banking Finance Company (NBFC), which could act as an account aggregator to enable the common man to see all his accounts across financial institutions in a common format.

All NBFCs needs a Rs. 2 crore paid up capital but this would be a good idea. Banks in the UK and US allow customers to export into an OFX format, which can then be imported easily into financial software. There are formats for brokerages, mutual funds/investments and credit companies. If we allowed a company to get authorization and aggregate account information in one place (where you can’t transact, just see balances and transactions etc) we would see longer term benefits such as warnings/alerts, credit scores, automated tax calculations etc. Capital Mind would be interested in the space!

The rest of the statement was standard. Greece isn’t a problem other than fund flows, the economy is recovering, stalled projects might be back and so on.