RBI mulls bond forwards, engages with life insurers

The Reserve Bank of India (RBI) is understood to be weighing a proposal to allow ‘bond forwards’ — a deal under which a financial institution can buy a specific government security for a pre-agreed price at a future date.

A forward market that would result in actual delivery and purchase of sovereign papers would be lapped up by life insurance companies who would find it easier and less risky while planning their investments over the years.

“RBI and the clearing corporation had sounded out some of the insurance companies on the subject. Most are interested. Besides helping insurers to lower the risk, a market for bond forwards would deepen the fixed income market and more importantly partly support the financing of fiscal deficit,” a senior industry source told ET. CCIL, or the Clearing Corporation, provides clearing and settlement in money, government bonds, foreign exchange and derivatives.