The Reserve Bank of India (RBI) is working with fellow regulators on improving the Indian interest rate markets through development of a securities lending product that could allow participation from entities such as insurance and pension funds and mutual funds, deputy governor B P Kanungo said in Moscow. Kanungo said the central bank was working with the Insurance Regulatory and Development Authority, the Securities and Exchange Board of India and Pension Fund Regulatory and Development Authority on developing a wider pool of securities lenders from among insurance, pension funds and mutual funds to benefit short-selling activity. In a speech at the 20th FIMMDA - PDAI Annual Conference in Moscow on August 31, Kanungo said, “Insurance and pension funds, mutual funds have significant holdings of government securities that could be used to lend to short sellers. This would avoid short-squeeze incident we saw a couple of years back, apart from generating income for these entities. We are working with regulators to develop a securities lending product that could enable these entities to participate in securities lending.” FIMMDA is a representative body of participants in the fixed-income market in India. PDAI has played a key role in development of the primary market in government debt over the past two decades. In 2017, a couple of instances were noted where public sector banks reportedly created a cartel, thereby refusing to lend bonds to foreign banks and primary dealers for covering short positions despite their offer to pay a significant premium for the same, causing a 'short squeeze'. The instances, unprecedented until then, also forced the central bank to intervene. Kanungo also observed that the Indian fixed income market has to grow to cater to the investment needs of an economy that aspires to become a $5-trillion economy in near future. “While the RBI and other sister regulators will continue to draw the contours of growth with financial stability in mind, the market needs more activity, innovation and enterprise from the community of participants in this market,” he added.