The RBI said the exact revised date for implementation of the CDS guidelines, which would allow corporate entities including insurers, FIIs and mutual funds to hedge against the risk of default in the corporate bonds to which they subscribe, will be notified shortly
Mumbai: The Reserve Bank of India (RBI) has deferred operationalisation of its credit default swap (CDS) guidelines by a month till November-end to give market participants like banks and other financial institutions more time to clarify details on documentation and operational aspects, reports PTI.
“Market participants have asked for certain clarifications regarding documentation, operational aspects and the arrangement for the necessary institutional framework... The matter has been reviewed and it has been decided to operationalise CDS guidelines... by the end of November 2011,” the RBI said in a notification.
The apex bank had finalised the guidelines in May and they were scheduled to be implemented from 24th October.
It said the exact revised date for implementation of the CDS guidelines, which would allow corporate entities including insurers, FIIs and mutual funds to hedge against the risk of default in the corporate bonds to which they subscribe, will be notified shortly.
“Necessary infrastructure, which includes trade repository, documentation, publication of CDS curve for valuation, standardisation of contracts, etc, required for the launch of the product is being put in place,” the RBI said.
Earlier this week, the central bank had issued a formal notification specifying that Credit Default Swaps are derivatives instruments.
A CDS is a guarantee in which the buyer of a credit swap receives credit protection, while the seller of the swap guarantees the credit-worthiness of the product. By doing this, the risk of default is transferred from the holder of the fixed income security to the seller of the swap.
The RBI’s guidelines come at a time when the quantum of bad loans in the banking system appears to be gradually building up. For instance, gross NPAs of the country’s largest lender SBI reached a three-year high of 3.52% of loans for the quarter ended 30th June.
The users of CDS include commercial banks, primary dealers, non-banking finance companies (NBFCs), mutual funds, insurance companies, housing finance companies, provident funds, listed corporates, foreign institutional investors and other institutions specifically permitted by the RBI.
The RBI had announced in its second quarter review of the monetary policy in October 2009 that it would introduce a plain over-the-counter single name CDS for resident entities.
Following this, it had appointed an internal working group to finalise the operational framework in consultation with market participants.
The final report of the working group was presented to the RBI in February, following which it sought public comments.
As part of measures to enable more financial market reforms, the RBI also increased the period of short sale in government securities from the existing five days to a maximum of three months.
In its guidelines issued in May on CDS for corporate bonds, the RBI said a credit event (that is, a default on a previously agreed financial obligation) will cover restructuring approved under the Board for Industrial and Financial Reconstruction, including corporate debt restructuring and corporate bond restructuring.
The RBI observed that the objective of introducing CDS on corporate bonds is to provide market participants a tool to transfer and manage credit risk in an effective manner through redistribution of risk.
‘Since CDS have benefits like enhancing investment and borrowing opportunities and reducing transaction costs while allowing risk-transfers, such products would increase investors’ interest in corporate bonds and would be beneficial to the development of the corporate bond market in India,” the central bank had said.
While Crisil has assigned an ‘A1+’ rating to Reliance Capital’s Rs6,000 crore short-term debt programme, Icra has also revalidated its ‘A1+’ rating for the company’s Rs10,000 crore short-term debt programme
New Delhi: Two leading rating agencies, Crisil and Icra, have assigned highest-credit quality ratings to the short-term debt programmes of financial services major Reliance Capital, reports PTI.
While Crisil has assigned an ‘A1+’ rating to Reliance Capital’s Rs6,000 crore short-term debt programme, Icra has also revalidated its ‘A1+’ rating for the company’s Rs10,000 crore short-term debt programme.
Icra, an associate of global rating agency major Moody’s, said that it was the “highest-credit quality rating assigned by Icra to short-term debt instruments” and the rating would remain valid till September 2012.
On the other hand, Crisil said that its ‘A1+’ rating for Reliance Capital’s debt programme indicated a “very strong degree of safety regarding timely payment of financial obligations” with lowest level of credit risk.
Yesterday, another rating agency Fitch had also reaffirmed its ratings for Reliance Capital. However, the agency said that it was withdrawing these ratings as the company has decided not to participate in Fitch rating process.
“The ratings have been reaffirmed and withdrawn as Reliance Capital has chosen to stop participating in the rating process. Therefore, Fitch will no longer have sufficient information to provide ratings or analytical coverage of Reliance Capital,” Fitch Ratings said in a statement.
Reliance Capital has interests in a range of financial services sectors including asset management, mutual funds, portfolio management services, life and general insurance.
While the food ministry has pegged sugar production in the 2011-12 marketing year (October-September) at 24.6 million tonnes, the agriculture ministry’s forecast is slightly higher at 25 million tonnes. The industry estimates are even higher, at 26 million tonnes
New Delhi: An Empowered Group of Ministers (EGoM) on Food is expected to take a call on sugar exports in the 2011-12 marketing year in the first week of November, reports PTI quoting food minister K V Thomas.
The previous meeting was deferred as the food ministry had not firmed up its decision on sugar exports in the absence of correct production estimates for the sweetener for the year.
“I am meeting the officers of the agriculture ministry in a day or two to reconcile the sugar production estimates.
Based on that, I will prepare a note on sugar exports by the month-end. In the first week of November, the EGoM may take a decision on this,” Mr Thomas told reporters after releasing the Operations Report of Food Corporation of India for 2010-11.
While the food ministry has pegged sugar production in the 2011-12 marketing year (October-September) at 24.6 million tonnes, the agriculture ministry’s forecast is slightly higher at 25 million tonnes. The industry estimates are even higher, at 26 million tonnes.
“I will verify sugar output figures. We want to be advised by the agriculture ministry on this issue,” he said.
Asked if the government will allow wheat and rice exports from government godowns which are overflowing with huge stocks, the minister said, “No. We want to be cautious.”
He explained that the government procures only 30% of the country’s production and cannot allow exports as it has to maintain foodgrain stocks of up to three years for implementation of the proposed National Food Security Act.
The minister further said it makes no sense to permit exports from government godowns as the remaining 70% of the country’s production is sold in the open market.
Last month, the government allowed the export of 2 million tonnes each of wheat and common rice under the open general licence (OGL) scheme.
Presently, the central pool has foodgrain stocks of around 60 million tonnes owing to the high level of procurement in the past three years.
Last year, foodgrain production stood at a record 241.56 million tonnes.