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? (UPSC Prelims 2024)

Question

The correct answer is [C] 1, 2 and 3.

Statement 1 (Correct): Traditionally, the Liquidity Adjustment Facility (LAF) was restricted to commercial banks and Primary Dealers. However, to address liquidity stress in the shadow banking sector, the RBI has periodically opened windows (such as the Special Liquidity Facility or specific repo operations) that allow NBFCs to access liquidity, either directly or indirectly through specialized schemes. In the context of recent regulatory shifts, they are considered to have access to these facilities under specific RBI frameworks.
Statement 2 (Correct): Under the Foreign Portfolio Investment (FPI) route, Foreign Institutional Investors are permitted to invest in Government Securities (G-Secs) and Treasury Bills. The RBI and SEBI set specific investment limits for these entities to manage capital flows and ensure market stability.
Statement 3 (Correct): In India, major stock exchanges like the BSE and NSE have established separate debt trading platforms. These platforms cater to both retail and institutional investors for the trading of corporate bonds, G-Secs, and municipal bonds, aiming to increase transparency and liquidity in the secondary debt market.

GKToday Admin · Accepted Answer

1, 2 and 3 The correct answer is [C] 1, 2 and 3.

Statement 1 (Correct): Traditionally, the Liquidity Adjustment Facility (LAF) was restricted to commercial banks and Primary Dealers. However, to address liquidity stress in the shadow banking sector, the RBI has periodically opened windows (such as the Special Liquidity Facility or specific repo operations) that allow NBFCs to access liquidity, either directly or indirectly through specialized schemes. In the context of recent regulatory shifts, they are considered to have access to these facilities under specific RBI frameworks.
Statement 2 (Correct): Under the Foreign Portfolio Investment (FPI) route, Foreign Institutional Investors are permitted to invest in Government Securities (G-Secs) and Treasury Bills. The RBI and SEBI set specific investment limits for these entities to manage capital flows and ensure market stability.
Statement 3 (Correct): In India, major stock exchanges like the BSE and NSE have established separate debt trading platforms. These platforms cater to both retail and institutional investors for the trading of corporate bonds, G-Secs, and municipal bonds, aiming to increase transparency and liquidity in the secondary debt market.

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