Mumbai: Odds are shortening that Indian sovereign debt will be included in JP Morgan’s emerging market bond index after this month’s scheduled rebalancing of the gauge seeks to fill the vacuum created by Russia’s exclusion, potentially lowering borrowing costs in the world’s fastest-expanding major economy.
Multiple banking sources told ET that the index providers are increasingly tilted in favour of building a large, liquid market as Russia’s exclusion has created a gap and skew in volumes.
In a sign of increasing activity around the matter of index inclusion, officials from the Reserve Bank of India (RBI) are said to have recently been taking feedback from certain foreign banks regarding operational aspects of handling increased custodian flows from overseas investors.
“There were discussions regarding operational issues with banks which handle custodian flows; the RBI officials were taking feedback on whether the potential overseas flows would be considered in CSGL (Constituent Subsidiary General Ledger) or SGL (Subsidiary General Ledger) gilt accounts,” a source said.
At present, the JP Morgan index has a maximum 10% weightage for a country. Assuming India’s entry at that weightage, the Mumbai debt market could attract inflows worth $30 billion over time following index inclusion, Goldman Sachs analysts had said in a note last year.
An email sent to the RBI requesting a comment on the matter did not receive a response by the time of going to press. JP Morgan’s representatives did not take up queries before publication.
Trade Settlement
Sources aware of the developments said that the discussions between the RBI and banks were also to do with aspects related to settlement of securities accounting for global market hours, registration issues and matters pertaining to know-your-customer norms.
If announced, the index inclusion could involve local settlement of securities instead of opting for settlement on the Belgium-based Euroclear platform, sources said.
“The larger global investors do not consider local (Indian) settlement an impediment even as aspects such adjusting to global market timing need to be streamlined. Some of the smaller players were pushing for Euroclear settlement for operational ease but as it stands, domestic settlement would likely be the preference as is the case in Indonesia. Euroclear settlement still has taxation challenges,” another source said.
