India allows NRB to invest in 91-day T-bill

KATHMANDU, Nov 24:
India has finally given its consent to Nepal to invest on 91-day treasury bills, a move that would enable Nepal´s central bank enjoy better returns and also facilitate its international payments.

So far, India was allowing Nepal Rastra Bank (NRB) to invest on its 14-day treasury bills only. NRB had been requesting India, its Indian counterpart in particular, to allow it invest on longer term bills since long. The issue was raised during Prime Minister Dr Babu Ram Bhattarai´s recent visit to India as well.

“Reserve Bank of India (RBI) has finally responded to our call positively. This is a major development. India has not allowed any other central bank to invest on it so far,” said a senior official at NRB. He told Republica that the central bank would start investing on the new avenue within a week.

Records show, NRB´s investment on 14-day treasury bills in India has been fetching it interest income of 5 percent. With investments in 91-day treasury bills, officials said the investment will yield 8 percent interest returns.

“Investments on dollars have barely been yielding return of even a percent. Interest return of 8 percent that 91-day treasury bills yields will ensure additional profits to the country,” said the source.

Nepal presently maintains a reserve of around 40 billion Indian rupee at the RBI. It has made arrangements of investing them on 14-day treasury bills that are traded in Kolkata when there is no pressure of using them for various payments.

Though the officials ruled out possibility of raising this volume of reserve for now, they disclosed the central bank plans of investing the major chunk of the reserve in the 91-day treasury bills that is traded in Mumbai.

“We will write to RBI about our new investment plan within a couple of days. This will put in place an automatic mechanism of investment,” said the source. If required, NRB can always ask RBI to sell the bills to service international payments, he stated, elaborating that the fresh arrangement will facilitate overseas payments and also reduce the cost of payments as well.

Latest report show, investment made by NRB is presently fetching returns at an average of 1.40 percent. Returns on investment done on greenback stands merely at 0.3 percent, which is much lower than investments done on other convertible currency and in India.

According to NRB, it has put around 18 percent of its total investments in US treasury bills and invested another 55 percent on US dollar. It has invested another 17 percent in Euro treasury bills and about 10 percent in UK treasury bills.

Going by the existing rule, NRB can make investments on US dollar, pound sterling, Canadian dollar, Japanese Yen and Indian rupee. The Investment Guidelines allow NRB to invest as much as IRs 25 billion on Indian instruments. It also seeks NRB to maintain 40 percent of total investment portfolio on liquid instruments.

However, at any point of time, NRB must make sure it has enough reserve to finance goods and services imports for 6 months and also clear principle and interest of external debts for a year.

As global economic instability has been affecting currency and securities market, NRB has been witnessing a drop in its profits in recent years. Records show, NRB´s profits for 2006/07 had stood at Rs 6.25 billion. It, however, dropped to Rs 1.73 billion in 2009/10. It grew nominally to Rs 2.28 billion in 2010/11.

Source: Republica

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