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Foreign Currency Loans

Treasury Operations

 

Today, treasury operation means managing cash flow, managing credit risks & market risks and managing liquidity across the enterprise. The department assesses and manages reserve and risk capital requirement and asset-liability synchronization. Interest Rate Risks are also properly studied. Investments, Forex management is also part of the job. The conventional control and supervisory measures, mostly in the nature of preventive steps, can be divided into three parts:

  • Organisational controls: This refers to the checks and balances within the system. Treasury is divided in two parts — the front and back office. The front office generates deals and the back office settles trades only after verifying compliance with the internal controls.

  • Exposure limits: These caps are put in place to protect the bank from credit risk, which, in Treasury, may be of defaulters and counter party.

  • Internal controls: The most important of the internal controls are position and stop-loss limits. The trading limits are of three kinds:

    a) on deal size,

    b) on open positions, and

    c) Stop-loss.

    Treasury faces Market Risk (which broadly covers that of liquidity, interest rate, exchange rate and equity price); credit risk, and operational risk.

    Liquidity risk

    The liquidity risk in Treasury manifests in different dimensions:

    i) Funding Risk: It arises due to replacement of liabilities withdrawn, ii) Time Risk: It arises due to the need to compensate for non-receipt of expected inflows of funds, that is, performing assets turning into non-performing assets; and iii) Call Risk: It arises on the crystallisation of contingent liabilities and the inability to leverage profitable business opportunities when desirable.

  •   Investment by Foreign Entities Corporate Debts (utilization --33.7% till now)
    FIIs in Infra-Structure Bonds US$ 12 billion
    Non-Resident investment in IDF US$ 10 billion
    QFIs

    (Qualified Institutional Investors )

    US$ 03 billion
      Aggregate Limit in Infra Bonds US$ 25 billion
    Non- infra Bonds US$ 25 billion
    Investment in CPs,CDs      NIL

     In addition, qualified Foreign Institutions (QFIs) would continue to be eligible to invest in corporate debt securities (without any lock-in or residual maturity clause) and mutual fund debt schemes

    US$ 01 billion
      Aggregate Corporate Debt US$ 51 billion
      Investment by Foreign Entities Govt.  Debts (utilization- 53.5% till now)
         
    FIIs, QFIs US$ 20 billion
    Eligible Investors' investment in

    Treasury Bills (T-Bills)

    US$ 5.5 billion (sub-limit of US$ 20 billion )

    FIIs which are registered with SEBI under the categories of Sovereign Wealth Funds(SWFs) ,Multilateral Agencies, Endowment Funds, Insurance Funds, Pension Funds and Foreign Central Banks.

    US$ 10 billion
      Agregate Govt. Debt

     

    US$ 30 billion
       

    Long-term investors include SEBI-registered sovereign wealth funds (SWFs), multilateral agencies, endowment funds, insurance funds, pension funds and foreign central banks.

       

    The residual maturity period (at the time of first purchase) requirement for the entire limit of $22 billion for foreign investment in the infrastructure sector has been uniformly kept at 15 months. The five-year residual maturity requirement for investments by QFIs within the $3 billion limit has been modified to three years original maturity.

       

    *Maturity restrictions for first time foreign investors on dated G-Secs removed

    *Removal of rules requiring FIIs to hold infrastructure debt for at least one year

       

    The Reserve Bank of India (RBI) on Tuesday (01 April,2014) barred foreign investors from buying government debt with less than one-year maturity to encourage longer-term fund inflows and reduce the country's dependence on hot money.

        What is the Overseas borrowing Scenario? Ans- RBI has imposed restrictions on corporates for raising short term funds from overseas markets based on guarantee of domestic banks. However, Banks are free to raise Medium Term Notes (MTN) in overseas markets if they have profitable deployment avenues.
        Whether FIIS are willing to invest in long term securities ? Ans- depends on the behaviour of yield curve. If Treasury bills are trading at a yield above 10 year bonds, inflow for long term securities will be restricted.

     

     

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