Consider the following statements:

  1. In India, Non-Banking Financial Companies can access the Liquidity Adjustment Facility window of the Reserve Bank of India.
  2. In India, Foreign Institutional Investors can hold the Government Securities (G-Secs).
  3. In India, Stock Exchanges can offer separate trading platforms for debts.

Which of the statements given above is/are correct?

(a) 1 and 2 only
(b) 3 only
(c) 1, 2 and 3
(d) 2 and 3 only

Correct Answer: (d) 2 and 3 only

  • Statement 1Incorrect. In India, Non-Banking Financial Companies (NBFCs) cannot directly access the Liquidity Adjustment Facility (LAF) window of the Reserve Bank of India (RBI). Unlike banks, NBFCs do not have large amounts of government securities to offer as collateral, which limits their ability to borrow from the LAF window.
  • Statement 2Correct. In India, Foreign Institutional Investors (FIIs) are allowed to hold Government Securities (G-Secs). FIIs can invest in dated Government Securities and Commercial papers of Indian establishments.
  • Statement 3CorrectStock Exchanges in India can offer separate trading platforms for debts. For instance, the National Stock Exchange (NSE) has unveiled India’s first debt trading platform.

Learn more

  • Non-Banking Financial Companies (NBFCs):
    • NBFCs are financial institutions that provide banking services without meeting the legal definition of a bank.
    • They cannot directly access the RBI’s LAF window due to limited government securities for collateral.
    • NBFCs are required to maintain a Statutory Liquidity Ratio (SLR) of 15% of their outstanding public deposits.
  • Foreign Institutional Investors (FIIs):
    • FIIs include entities like insurance companies, pension funds, and sovereign wealth funds.
    • They can invest in various Indian securities, including government securities, corporate bonds, and commercial papers.
    • FIIs help diversify the investment pool and bring in foreign capital, which is crucial for funding projects like India’s green bonds.
  • Debt Trading Platforms:
    • Stock exchanges like the NSE and BSE offer separate trading platforms for debt instruments.
    • These platforms facilitate the trading of various debt securities, including government securities, corporate bonds, and other fixed-income instruments.
    • The introduction of these platforms aims to enhance liquidity and transparency in the debt market.

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