Mumbai: Global index provider FTSE Russell and State Bank of India (SBI) on Thursday signed an agreement to launch India’s first bond index.

A press release issued on the sidelines of Prime Minister Narendra Modi’s visit to UK said the two companies have signed a letter of intent to develop the FTSE-SBI India Bond Index.

SBI Mutual Fund, the asset management unit of India’s largest bank, intends to use the new index as the basis for a new investment product, the release added.

“This is an important step for FTSE Russell and LSEG (London Stock Exchange Group) as a whole, providing us with a strong platform and strategic alliance for building our presence in India," said Donald Keith, deputy CEO, FTSE in the press release, adding the index provides a tool to deepen liquidity in the sovereign and corporate bond market.

According to Arundhati Bhattacharya, chairman, State Bank of India, despite investor appetite to access India’s ongoing growth story, Indian issuers’ bonds do not have a credible global benchmark for passive investment funds that capture the Indian growth story.

“The FTSE SBI Indian Bond indices will be a catalyst in the ongoing development and deepening of Indian sovereign and corporate bond markets. It will provide a benchmark for attracting passive funds into Indian bonds as an asset class," she said, adding that such an index will also help the secondary market for fixed income evolve.

The launch of a bond index is in line with the Reserve Bank of India’s efforts to deepen the bond markets and bring in more retail investors.

“In the stock market, we have indices, so we are seeing if we can create a similar index in the bond market to attract bigger investments," H.R. Khan, deputy governor, RBI, had said at an event in Mumbai on 27 October.

In April, RBI said it would try to attract more retail investors to the bond markets through various means. This included permitting retail investors to participate in the bond markets through web-based platforms. The central bank also said that it would look at allowing retail investors direct access to the primary and secondary debt market.

Simultaneously, RBI has also been opening up the debt markets to foreign investors and said it will allow foreigners to hold up to 5% of government securities by 2018.

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