Mar 2, 2001|
Benefits to debt markets
The measures announced in Budget 2001-02 for the banking and finance sector are expected to have a positive impact. There has been a special emphasis on lowering interest rates by aligning the administered interest rates with market rates. This will enable corporates to reduce their cost of funds besides helping the government to reduce its interest burden.
In order to increase participation as well as enhance transparency in the secondary debt market measures have been initiated. The halving of the dividend distribution tax to 10% should increase inflows into debt mutual funds. Further, the recent rate cut of 50 basis points in bank rate by the RBI is also expected to boost market sentiment.
The measures announced in the budget for debt markets are as follows:
Clearing Corporation will be set up to enable settlement of forex transactions.
Trading of government securities through screen based trading system will be implemented.
To facilitate transparent electronic bidding in auctions and dealing in government securities on a real time basis, an electronic negotiated dealing system will be set up by the RBI by June 2001.
To ensure smooth and quick transfer of funds, electronic fund transfer (EFT) real time gross settlement systems (RTGS) are being put in place by the RBI within next year.
CBDT to promote the issuance of STRIPS, zero coupon bonds and deep discount bonds.
Government Securities Act will replace the old Public Debt Act.
Comprehensive legislation will be introduced on securitization.
A group comprising RBI, SEBI, stock exchanges and ministry of finance to monitor and implement these developments for the purpose of active debt markets.
These measures will bring about transparency and efficiency in government securities trading. Screen-based trading is also expected to increase market participation. The measures would also help integrate the forex and debt markets.
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