• An employee walks out of the Bombay Stock Exchange (BSE) building in Mumbai August 22, 2013.
  • Bank of New York Mellon

BSE Ltd and Bank of New York Mellon have signed an agreement enabling foreign investors to provide AAA rated sovereign bonds traded outside of India as collateral for trades done on the domestic exchange, the two parties said in a joint statement released late on Friday.

The two parties said with the signing of this agreement they "aim to enhance the trading experience for foreign institutional and retail investors and bring Indian practices in line with the best in the world".

The move is expected to make it easier for foreign investors to operate in India and reduce their costs of collateral and trading in Indian markets significantly over a period of time.

"Currently FIIs have to go through a time consuming process to get approvals for collaterals under SEBI...this MoU (memorandum of understanding) would mean they will come directly to the exchange. This will reduce their time to market," a BSE spokesman told Reuters.

Foreign institutional investors who have been key behind theSensex hitting all-time highs on Sept.8 have bought Indian shares worth $13.95 billion and debt worth $19.70 billion so far this calendar year.

Indian shares have been the best performers in Asia in 2014 so far. The Sensex is up 26.7 percent while the Nifty is up 28.7 percent in dollar terms.