Foreign banks increase exposure in gilts & forex

With the ongoing volatility in domestic interest rates as well as in the Sensex movement, foreign banks, whose numbers may be small, have suddenly emerged as the leading players in both the segments - gilts and forex - in the money market. In the first week of the current month, foreign banks have bought g-secs worth nearly Rs 1,000 crore on a daily basis. This accounts for nearly 40% of the total daily g-secs deals , which is much higher than the earlier period.

According to Clearing Corporation of India Ltd (CCIL), the share of foreign banks in total g-secs' purchases was only 28% in May. In April, their share was still lower at 24%.

The Reserve Bank of India (RBI) permits foreign banks to classify government securities purchased under the reverse repo auction as part of the statutory liquidity requirements (SLR) exposure of the bank. However, given the 50 basis points rise in reverse repo rates in the last six months, purchase of securities through reverse repo auction has proved to be a costlier route. As a result, foreign banks prefer outright purchase of g-sec through the secondary market.

Further, given the prevailing high volatility in the domestic equity markets, many foreign banks have pared their exposure in equities and increased that in the government securities.

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