MC Explains| All you need to know about why RBI excludes 14-year, 30-year G-Secs from FAR

30-year G-Secs from FAR

The Reserve Bank of India (RBI) on July 29 excluded all new government securities having a tenure of 14-year and 30-year from the fully accessible route (FAR).

This was done in consultation with the government and the directions are applicable with immediate effect.

If you are aware of this development and want to know more, then here is an explainer for you.

To begin with, lets first understand what does FAR securities means?

FAR enables non-residents to invest in specified government of India dated securities without any investment ceilings.

FAR was introduced by RBI in 2020 wherein certain specified categories of Central Government securities were opened fully for non-resident investors without any restrictions, apart from being available to domestic investors as well.

What has RBI said?

The Central bank has excluded new securities issued under these tenure from the FAR and said future issuances of government Securities in these tenors shall not be available for investment under FAR.

What will happen to existing investment?

As per release, existing stocks of both these securities, which is already included as ‘specified securities’ under the FAR will continue to be available under the FAR for investments by non-residents in the secondary market.

Why RBI excluded these securities?

As per money market experts, this move is just curb volatility and no issuance of one security in the first half of this financial year.
Rajeev Pawar, head of treasury, Ujjivan Small Finance Bank said 14 years securities are not issued anymore.

Further he added that 30-year security is usually for domestic institutions. Keeping them in FAR will make the yield fall faster and make it more difficult for domestic financial institutions to buy them.

What will happen if foreign investors invest in new securities?

The RBI said investments by foreign portfolio investors in new government securities in 14-year and 30-year tenors issued henceforth shall be either reckoned under the investment limits prescribed by RBI.