New Delhi, June 18: The Reserve Bank of India (RBI) is maintaining its preference for domestic settlement mechanisms in the government securities market and is not currently considering direct settlement of sovereign bonds through offshore platforms such as Euroclear, according to people familiar with the matter.
The move underscores the central bank’s broader strategy of strengthening India’s local debt market infrastructure even as the country seeks to attract greater participation from foreign investors. Officials believe that routing transactions through domestic systems will help maintain liquidity, improve transparency, and support efficient price discovery in the government bond market.
Sources indicated that the RBI wants international investors to access Indian government securities through the Negotiated Dealing System-Order Matching (NDS-OM), the country’s electronic trading platform for secondary market transactions. By encouraging all market participants to trade within a single ecosystem, policymakers aim to avoid fragmentation that could arise if trading activity shifts to multiple offshore settlement venues.
India has spent the past several years steadily liberalising its bond market framework. The government introduced a category of securities that carry no foreign investment limits, making it easier for overseas investors to gain exposure to Indian debt instruments. More recently, authorities announced the removal of capital gains tax and withholding tax on select government securities held by foreign investors, a move widely viewed as an effort to boost capital inflows.
These tax reforms have already begun to show results. Since the announcement of the tax exemption measures earlier this month, foreign investors have significantly increased their purchases of Indian government bonds. Market participants note that the inflows reflect growing confidence in India’s debt market, particularly after the inclusion of Indian bonds in several major global indices.
Although discussions regarding offshore settlement arrangements had taken place in the past, progress remained limited due to tax-related hurdles that reduced the attractiveness of Indian securities for foreign investors. With those barriers now removed, expectations had emerged that authorities might revisit the idea of allowing settlement through international platforms such as Euroclear.
However, people familiar with the central bank’s thinking suggest that the RBI continues to favour the domestic clearing framework. Policymakers reportedly believe that concentrating trading activity within India’s own systems creates a more robust marketplace by ensuring that buyers and sellers interact on a common platform.
Market experts argue that liquidity remains one of the most important considerations for debt investors. A centralised trading environment generally allows investors to execute transactions more efficiently while benefiting from tighter bid-offer spreads and greater market depth. The RBI’s position appears to be aligned with these objectives.
Industry observers note that international investors have become accustomed to using global settlement networks such as Euroclear for investing in sovereign debt markets across the world. Such systems simplify settlement procedures and provide operational familiarity for large institutional investors. Nevertheless, supporters of the domestic model contend that India’s electronic bond trading infrastructure has matured significantly and is capable of supporting higher levels of foreign participation.
The Indian bond market has also witnessed notable technological developments in recent years. Financial technology company MarketAxess launched an electronic platform that enables overseas investors to directly trade Indian government securities. The platform is connected to India’s domestic bond trading infrastructure through an integration model that allows foreign and local investors to participate in the same marketplace.
Market participants believe this approach strikes a balance between improving international access and preserving domestic market liquidity. Instead of shifting settlement activity offshore, the model brings overseas investors into India’s existing trading ecosystem.
Another major development is the expected integration of Bloomberg’s trading services with the NDS-OM platform. Such connectivity is anticipated to further expand access for global investors while reinforcing the central bank’s objective of keeping transactions within the domestic settlement framework.
Financial market experts suggest that these technology-driven solutions may reduce the need for offshore settlement arrangements altogether. By providing seamless electronic access to Indian securities, domestic platforms can offer many of the advantages sought by international investors without sacrificing liquidity concentration.
India’s government bond market has gained substantial global visibility over the last two years following its inclusion in prominent international bond benchmarks. The entry of Indian securities into widely tracked emerging market debt indices has prompted large global funds to allocate capital to the country, generating steady foreign inflows.
The inclusion process marked a significant milestone for India’s financial markets and reflected increasing confidence among global investors in the country’s macroeconomic fundamentals, policy framework, and market infrastructure.
Attention is now turning to additional benchmark index reviews that could further expand India’s presence in international debt portfolios. Analysts believe that broader index inclusion could lead to fresh inflows from passive investment funds and long-term institutional investors.
Recent foreign investment trends indicate growing interest in Indian sovereign debt. Data from market participants show that overseas investors have purchased substantial volumes of government securities following the tax reforms announced earlier this month. The increase in demand has reinforced expectations that India’s bond market could continue attracting foreign capital even without offshore settlement arrangements.
Economists point out that India’s relatively stable economic outlook, controlled inflation environment, and improving fiscal management have strengthened the appeal of its government securities. Combined with ongoing reforms aimed at improving market accessibility, these factors have positioned India as an increasingly important destination within emerging market debt portfolios.
For policymakers, the challenge lies in balancing international investor convenience with the long-term development of domestic financial markets. The RBI appears committed to ensuring that any future expansion in foreign participation supports local market depth rather than diverting activity to offshore venues.
As foreign ownership of Indian government bonds continues to rise, the central bank’s emphasis on domestic trading infrastructure highlights its broader vision of creating a self-sustaining and globally competitive bond market. By encouraging participation through local platforms while enhancing technological connectivity, India is seeking to deepen its debt market without compromising liquidity or transparency.
The RBI’s current stance signals that domestic systems will remain at the centre of India’s sovereign bond trading ecosystem, even as global investor interest in the country’s debt market continues to grow.