Mumbai, July 26: The Reserve Bank of India (RBI) has reiterated that foreign institutional investors (FIIs) will not be allowed to trade in treasury bills.

According to the RBI guidelines, only the dedicated debt funds from the FIIs are allowed to invest in dated securities of both the central and state governments.

FIIs are allowed to invest either in the primary market at the auction/floatation or in the secondary market. But they should route the investment only through the designated banks, Reserve Bank of India said.

The designated banks can be any bank in India which has been authorised by the Reserve Bank of India to act as a banker to foreign institutional investors.

The guidelines say that investment by FIIs will be allowed only in the form of subsidiary general ledger (SGL) account through a bank having SGL account No: 11 (constituent's account) and a current account with the Reserve Bank of India.

Further, secondary market transactions by FIIs will be permitted through recognised Indian stock exchanges or over the counter with SGL account holders and will be governed by the delivery versus payment (DVP) system of the Reserve Bank of India.

The central bank had issued detailed guidelines for FII investments in government securities in March.

Subsequently, the Securities and Exchange Board of India notified on July 10 that the "transactions in government securities (by FIIs) shall be carried out in a manner specified by the Reserve Bank of India".

Despite the government clearance and the SEBI notification, none of the FIIs have taken the plunge in the gilts market as the contentious issue of withholding tax is yet to be sorted out.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.