Previous Year Question
Consider the following statements:
In India, Non-Banking Financial Companies can access the Liquidity Adjustment Facility window of the Reserve Bank of India.
In India, Foreign Institutional Investors can hold the Government Securities (G-Secs).
In India, Stock Exchanges can offer separate trading platforms for debts.
Which of the statements given above is/are correct?
1 and 2
Only 3
1, 2 and 3
2 and 3
Correct Answer: D
Detailed Solution
Statement 1 is incorrect.
The Liquidity Adjustment Facility—LAF is a monetary-policy instrument of the Reserve Bank of India. It enables eligible banking institutions and primary dealers to obtain short-term liquidity or place surplus liquidity with RBI.
Ordinary Non-Banking Financial Companies—NBFCs are not eligible direct participants in the regular LAF. NBFCs may obtain funds from banks, financial markets, debt instruments and other approved sources, but they ordinarily cannot directly access RBI’s LAF window in the manner of eligible banks.
During exceptional economic conditions, RBI may introduce a separate and limited Special Liquidity Facility. Such a temporary facility must not be confused with general access to the regular LAF.
Statement 2 is correct.
Eligible Foreign Portfolio Investors—FPIs, formerly referred to as Foreign Institutional Investors, can hold Central Government securities and State Government securities subject to prescribed limits and regulatory conditions.
Foreign investment in government securities may bring additional capital and liquidity into the debt market. However, RBI and the government may prescribe aggregate limits, security-specific limits and investment routes. Certain specified government securities are also available under the Fully Accessible Route—FAR.
Statement 3 is correct.
Stock exchanges in India can provide separate trading platforms for debt securities. Corporate bonds, non-convertible debentures and other listed debt securities can be traded through such platforms.
For government securities, the RBI-regulated Negotiated Dealing System—Order Matching, NDS-OM is a major institutional platform. The Retail Direct Scheme also provides individual investors with access to the primary and secondary markets for government securities.