Monday, March 4, 2024
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India and UK working on proposal to widen overseas ownership of Indian sovereign bonds on Euroclear

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The UK and India are working together to finalize a free-trade agreement following the UK’s formal exit from the Eurozone. As part of this agreement, the two countries are proposing to remove long-standing barriers to the settlement of sovereign bonds on Euroclear, a global clearing platform. This move could significantly increase overseas ownership of Indian government debt, making it more accessible to foreign investors.

Currently, Indian government bonds are not included in the globally tracked JPMorgan index. However, if the proposal is accepted, Euroclear UK would act as a clearing house for settling Indian sovereign bond investments made by foreign portfolio investors (FPIs). The Clearing Corporation of India (CCIL) would work with Euroclear UK to develop a mutually agreeable method for the treatment of Long-Term Capital Gains (LTCG), which Euroclear UK is unable to monitor.

The plan would allow foreign investors to transact in Indian bonds without the need for registrations, enabling potential significant inflows into the local bond market. After an FPI sells securities, the CCIL would share the capital gains liability with Euroclear UK, which would then communicate the information to the FPI investor. By the end of the financial year, the capital gains would be cleared.

Both Euroclear and the CCIL have yet to respond to requests for comment on the matter.

The LTCG tax on foreign ownership in India is currently set at 20%.

Euroclear UK and International is the central securities depository for the UK and is regulated by the Bank of England. The other Euroclear providers include Euroclear Bank, Euroclear Belgium, Euroclear Finland, Euroclear France, Euroclear Nederland, and Euroclear Sweden.

This proposal comes after JPMorgan recently included India in its emerging market bond index, paving the way for approximately $20-25 billion of foreign investment. Additionally, technical advisors to the Bloomberg Fixed Income index are in advanced discussions on including Indian bonds on its gauges.

The UK and India are also working on concluding a bilateral investment treaty alongside the free-trade agreement. The proposed plan on Euroclear settlement is seen as mutually beneficial, as Euroclear UK would expand its settlement business, while more FPI investment could flow into Indian bonds.

Overall, this proposal aims to remove barriers and encourage foreign investment in the Indian bond market, as well as strengthen economic ties between the UK and India.

More detail via Economic Times here… ( Image via Economic Times )

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