Deepening India’s bond markets

.........The Chakravarty committee of 1984 had recommended HTM only to protect banks from large capital losses on their SLR holdings, in the event of interest rates rising with its recommended move to market rates. Today, we are seeing two-way movement of interest rates. Yet, fears about the impact of removing HTM on bank balance sheets and on government borrowings continue to be voiced. The SLR, as the Narasimham Committee had pointed out, is meant only to satisfy a prudential requirement and not a government financing function. The new Basel III regulations will not allow it to be used for both. RBI Executor Director V.K. Sharma recently noted how a large IRS (interest rate swaps) market has developed, which is, however, dominated by foreign banks. They account for 80 per cent of notional principal amount outstanding here, whereas the public sector banks have barely a 2 per cent market share.......

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