Things we are reading today - June 10th, 2024

Indian banks are requesting the RBI to ease liquidity coverage ratio (LCR) mandates to free up more funds for lending. Currently, banks must maintain a high level of liquid assets to cover potential outflows from non-financial corporates and other legal entities, with run-off factors of 40% and 100%, respectively.

By reducing these outflow factors, banks could lower the required liquid asset reserves, increasing funds available for loans. This request comes amid a high credit-deposit ratio and increased loan demand. The LCR mandate was introduced post-subprime crisis to ensure banks have sufficient liquid assets for a 30-day stress period.

The government is considering revising the capital gains tax regime for debt mutual funds to provide relief for the Bharat Bond Exchange Traded Fund (ETF). Currently, debt mutual funds, including Bharat Bond ETF, are taxed at the investor’s income tax slab rate, which could deter investors.

Previously, long-term capital gains on debt funds held for over 36 months were taxed at 20% with indexation benefits. A potential carve-out for Bharat Bond ETF is being examined, with DIPAM set to recommend this to the revenue department.

Bharat Bond ETF, comprising bonds from government and private entities, has raised ₹33,400 crore since its 2018 launch. The government plans to issue a new tranche and is addressing taxation concerns.

SEBI will soon permit mutual funds (MFs) to engage in credit default swaps (CDS) to enhance investment options and market liquidity. MFs can buy CDS for hedging but cannot take speculative positions.

They must also buy secure instruments like government securities for investor protection. SEBI’s consultation paper suggests allowing MFs to sell CDS to create synthetic corporate bonds. The RBI’s revised guidelines now include MFs as CDS sellers.

Feedback on the paper is open until July 1. The detailed framework will expand MFs’ ability to buy and sell CDS across various schemes, excluding Overnight and Liquid schemes.

SEBI, on June 8 came out with a consultation paper that could potentially remove a couple of companies out of the 182 companies that are part of the F&O segment.

Derivatives contracts can be traded only if the underlying stocks meet certain criteria. Such criteria were last reviewed in May 2018. Since then, index values of Sensex and Nifty have risen 110 percent, whereas the daily average turnover in the cash market has surged 253 per cent.

Proposed changes include increasing the Median Quarter-Sigma Order Size, market wide position limits, and minimum rolling average daily delivery values. Stocks failing to meet these criteria for three consecutive months will exit the F&O segment.

The Product Success Framework will extend to stock derivatives, requiring sufficient turnover, open interest, and participation. Around 75 companies could potentially be included under these new rules.

In the upcoming budget, the commerce ministry may look to raise more money to fund startups. The seed fund scheme, announced in April 2021 with a corpus of Rs 945 crore, will end in 2025, and the ministry may consider proposing a new scheme on similar lines.

What are you reading today? Drop your suggestions here :point_down:t3:


Government continues to mess up tax calculations.
First they removed indexation to give a boost to Bank deposits, and now they want to introduce it again for Bharat Bond :man_facepalming:

It would be interesting if Rahul Gandhi picks this up as favoring a particular AMC against other fund houses :slight_smile:

How can they carve out an exception for a private ETF?

I hope that the govt could revert the taxation law on the debt and the indexation.