Wednesday, November 23, 2011

NRB to invest in 91-day Indian T-Bills

Nepal Rastra Bank (NRB) can now invest in higher interest yielding 91-day Treasury Bills (T-Bills) issued by Indian central bank.
Reserve Bank of India (RBI) has given green signal for Nepali central bank to purchase more interest yielding 91-days T-Bills, said spokesperson for NRB Bhaskar Mani Gyanwali.
Currently NRB's investment portfolio contains 14-day Indian T-Bills only along with T-Bills of financially stronger countries. "Investing in instruments with longer maturity period means NRB yields more interest income," he said, adding that central bank had requested Indian central bank to allow investment in the securities with longer maturity period for higher interest income.
During the recent official visit of Prime Minister Dr Baburam Bhattarai to India also the matter was discussed as a high priority.
For Nepal, investment in Indian securities is more lucrative than in treasuries belonging to foreign countries as Indian T-Bills are yielding returns higher than three per cent. Moreover, the recent global financial scenario has signaled to volatility of government securities issued by developed countries.
NRB´s investment on 14-day T-Bills in India has been fetching it interest income of five per cent. With investments in 91-day T-Bills, the investment will yield eight per cent return.
According to the NRB report, its investment is presently fetching returns at an average of 1.40 per cent. Returns on investment done on dollar stands merely at 0.3 per cent, which is much lower than investments on other convertible currency and in India.
According to NRB, it has put around 18 per cent of its total investments in US treasury bills and invested another 55 per cent on US dollar, 17 per cent in Euro T-Bills and about 10 per cent in UK T-Bills.
"The investment in dollar-denominated treasuries is rather less profitable due to interest rates being lower," Gyanwali said, adding that NRB can not invest the reserve in single currency or instruments as Nepal needs all types of currencies to make payments for imports.
The central bank's investment trend of last couple of years demonstrates the rearrangement of its investment portfolio. NRB had invested Rs 46.8 billion in US government T-bills in fiscal year 2008-09, which was reduced to Rs 29.7 billion in the next fiscal year.
However, the investment in Indian T-Bills have been more than doubled in the same period from Rs 18 billion to Rs 38.9 billion.
Along with the investment in treasuries, the major chunk of NRB reserves is kept in liquid instruments like foreign currencies especially — US dollars and in precious metals like gold and silver.
The Investment Guidelines allow NRB to invest as much as IRs 25 billion on Indian instruments. It also seeks NRB to maintain 40 per cent of total investment portfolio on liquid instruments. But NRB must make sure it has enough reserve to finance goods and services imports for six months and have to clear principle and interest of external debts for a year, according to Guideline.
As global economic instability has been affecting currency and securities market, the central bank’s profits has been dropping in recent years. The profit for 2006-07 had stood at Rs 6.25 billion, but it dropped to Rs 1.73 billion in 2009-10. However, it increased to Rs 2.28 billion in 2010-11.
Diversifying investment in more Indian securities has been a prominent issue that NRB had been lobbying for since some time.
Along with it, NRB has also been lobbying to RBI for the permission to open branch of Nepali remittance companies in India for channelise remittance formally.
At present, RBI allows the remittance from India through its Indo-Nepal Remittance Facility that allows Nepali migrants to send up to 50,000 Indian Currency (IC) in a single transaction through its National Electronic Fund Transfer (NEFT) member Indian commercial banks to Nepal SBI Bank's account that then routes the remittance to the receiver through its branches or a designated money transfers.
However, the money transfer channel has not been much successful as migrant workers in India are not aware about the money transfer facilities and chose to use informal channels.


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