Fin min source says JPMorgan indexed gilts may be settled on CCIL
Informist, Wednesday, Sep 27, 2023
By Krity Ambey
NEW DELHI – Trades of Indian government bonds in the JPMorgan's index suite for emerging market debt are likely to be settled on the domestic platform operated by the Clearing Corp of India Ltd, a finance ministry official said.
Last week, JPMorgan announced inclusion of Indian gilts in its Global Bond Index – Emerging Markets suite over a 10-month period starting Jun 28.
"The government may not need to make any changes to the regulatory norms in order to settle the bonds on CCIL. It will be done the same way it is currently being done for FPIs (foreign portfolio investors)," the official told Informist.
Earlier today, another senior finance ministry official had said that the settlement of these gilts will take place onshore, but did not give any details.
Most bond traders believe that foreign investors would have to trade these gilts during Indian market hours and settle them through the Clearing Corp of India's Negotiated Dealing System – Order Matching platform, bond market dealers said. Bilateral deals away from the platform may also have to be reported to the Clearing Corp, they said.
Some foreign investors have flagged the issue of a slow remittance process for them under the onshore settlement mechanism. On this, the official who gave details on Clearing Corp said that the remittance process was "already very fast" and added that the only issue here was that "before repatriation, they have to give clarity that they have paid witholding tax that takes one day."
Foreign investors have sought allowing remittance of at least 50?fore the tax is cleared, but the government is not looking to accede to the proposal, the official said.
The dividend income of foreign portfolio investors is taxed at the treaty rate with the country where the investor is based or 20% that is India's withholding tax rate, whichever is lower.
The government had initially considered settling global index-listed gilts offshore on Euroclear but that would mandate some tax incentives that the government was not willing to give, the official said.
The government currently imposes capital gains tax and witholding tax on foreign portfolio investors investing in Indian gilts through the FPI-route. These taxes would apply on investments in JPMorgan indexed gilts as well, the official said.
India's gilts will hold the maximum 10% weightage on the JPMorgan GBI-EM Global Diversified Index, and 8.7% weight on the flagship index for global emerging market debt. The listing process will be completed by Mar 31, 2025, with a 1% increase in weightage each month.
Only bonds eligible under the Fully Accessible Route with an outstanding equivalent of $1 bln or higher and maturing after December 2026, will be added to the index. Around 27 trln rupees, or $330 bln, of India's bonds are eligible for inclusion in the JPMorgan index. End