Government may allow FIIs park funds in debt market

In the face of continuing uncertainty in the domestic stock markets, the government and Reserve Bank of India may look at allowing foreign institutional investors to temporarily park their funds in the domestic debt market, a top Sebi official said.

"Many FIIs have approached us demanding permission to park their funds temporarily in the G-sec and Corporate Bond markets given the high volatility in equity markets. The matter may be looked into by the concerned authorities so as to prevent a fight of FII funds from the system," Sebi's Whole time member, T C Nair told PTI.

Peturbed by the high volatility in India's premier stock exchanges, a few FIIs have approached the market regulator with this demand, Nair said.

 Presently, FIIs are allowed to park upto $8 billion in the domestic debt markets, which includes upto $5 billion in the government securities and upto $3 billion in the corporate bonds.

FIIs have asked Sebi to temporarily raise the ceiling to $10-15 billion as against the present $8 billion.

The weakness in Sensex continued today as investors continued to exit positions, primarily owing to the advesre sentiment about a possible spillover of global financial downturn into the domestic system.

To ease the prevailing tight liquidity conditions, the Reserve Bank yesterday slashed its cash reserve ratio by 0.5 per cent, releasing Rs 20,000 crore (Rs 200 billion) into the banking system.

Following the FII's demand, the market regulator may convey the matter to the government and the apex bank, thus enabling FIIs to stay away from the stockmarkets during the present volatile times.

Allowing institutional investors to park their excess funds, which is presently in the equity market, will help to increase the liquidity positions in the market, besides retaining the FII funds within the country.

Sebi has also initiated steps to simplify norms to list the bonds as part of opening up of Indian local currency bond market to more players, Nair said.

Also, the market regulator has finalised norms for the much-awaited implementation of interest rate futures in the country and expects to launch the platform in January, Nair said.