Work on to reduce bond issuance cost, says Sebi's Ashwani Bhatia

Whole-time member says regulator also reviewing penalties for failure to comply with incremental borrowing norms

In an effort to deepen the corporate bond market, the Securities and Exchange Board of India (Sebi) is planning cost reduction and standardisation measures, said whole-time member Ashwani Bhatia while addressing industry body Associated Chambers of Commerce and Industry of India’s 6th National Summit & Awards on Corporate Bond Market.

Among the cost-reduction measures, the capital markets regulator is planning to do away with multiple issuances of offer documents. Bhatia said Sebi is working on the requirement for a single general information document for all issuances, through which only additional information will have to be provided for new issuances.

Sebi is also planning to remove the 1 per cent security deposit for the public issue of debt securities, reducing time in the processes, and making compulsory ASBA-based application for retailers.

“Sebi is also exploring a market framework to be made applicable to every listed issuer with outstanding non-convertible debentures of Rs 500 crore or above. This is being discussed internally, and participants will have to use it on a ‘comply or explain basis’,” he said.

At present, Sebi mandates large corporate borrowers to raise 25 per cent of their incremental borrowing through debentures over a period of two years. A penalty of 0.2 per cent of the shortfall was to be imposed in case of failure to comply, effective March 2023. However, Sebi had extended the timeline to March 2024 under the glide path.

“The cost of 0.2 per cent appears to be very high. As part of our initiative towards ease of doing business, we are now working with market participants and issuers on how to bring that about,” Bhatia said on the sidelines.

Bhatia added that a robust bond market will derisk the banking system, but institutional participation was necessary to deepen the market. He also pointed out that there was hardly any issuance beyond non-banking financial companies, especially from sectors like manufacturing.

The Sebi official also said that the regulator was planning to bring some standardisation in the industry akin to those followed for government securities (G-secs) to increase liquidity if a consensus is formed with industry players.

Along with its initiative towards the development of real estate investment trust (REIT) and infrastructure investment trust segments, Bhatia said that the regulator will soon bring regulations for micro, small and medium REITs — a framework to bring fractional ownership platforms within the regulatory ambit.

Sebi had floated a consultation paper on the same in May, but the proposal was not taken up in the following board meeting.

In its initiative to broaden the debt market, Sebi launched a backstop facility of Rs 30,000 crore called the corporate debt market development fund and a limited-purpose clearing corporation called the AMC Repo Clearing. The regulator has also implemented minimum thresholds for the usage of the ‘request for quote’ platform by market participants.

Speaking at the same event, former Sebi chairperson Ajay Tyagi called for the unification of the bond market and relaxation in the limit for foreign portfolio investors for investments in corporate bonds.

“The top-most simplicity in the easiest desirable form would be the unification of the bond market — unifying the regulatory regime for G-secs and corporate bonds, both for issuance and trading. This would greatly simplify the life of investors," he said.