Bond houses can retain a part of holding under 'Held To Maturity' class

MUMBAI: Bond houses can now plan their debt purchases better, with RBI on Monday allowing them to categorise a part of their securities as Held To Maturity, till March 2010. The HTM component of a portfolio need not be marked-to-market periodically and hence, not susceptible to provisions for depreciation.

However, analysts say the move will not materially impact the government���s borrowing programme, since it will only increase bond houses��� appetite by Rs 1,500-2,000 crore. But it did fuel speculation that banks too may now get to account for greater part of their portfolio as HTM (currently 25%), a move that is sure to shore up demand for bonds.
The central bank in a release said only securities acquired by the Primary Dealerships (PDs) under primary auctions will be eligible for the transfer, which could be only done once in a quarter. However, it put a ceiling for an individual PD of 100% of the paid-up capital at the end of the last fiscal. Each typically has Rs 100-200 cr as the paid-up capital.

There are only six standalone PDs in the country, 14 years after they were first introduced to strengthen the infrastructure in the government securities market. ICICI Securities, STCI, BankAm-Merrill Lynch and IDBI Gilts are the leading ones.

���The move should help curb undue volatility in the market, besides helping PDs run their books better,��� said Pradeep Madhav, managing director of STCI, a bond house. However, he said the deadline of March 2010 is disappointing, since this allows a PD a view of only six months on debt papers.

���Just in case the facility is discontinued after March, and interest rates are up, PDs stand to lose big,��� Mr Madhav told ET.

RBI has been struggling to successfully execute the UPA government���s record borrowing programme of Rs 4.51 lakh crore for the fiscal. So far it has had to reschedule two Rs 12,000-crore bond sales and bond houses have had to buy in most of the other auctions. To underwrite government bond sales is one of the key duties of PDs in the country.

���Foreign PDs for regulatory purposes may use the HTM facility, but not for internal management purposes, as this done according to their global practises,��� said Jayesh Mehta, country treasurer, Bank of America-Merrill Lynch PD. ���So the move will be only beneficial for Indian parentage PDs,��� he added.