 "Finance Minister Arun Jaitley with State Bank of India Chairman Arundhati Bhattacharya in Mumbai")
India is also leading an effort to develop a rating agency for BRICS countries (Brazil, Russia, India, China and South Africa) that would not only rate various instruments issued in these countries but also of other countries, said Economic Affairs Secretary Shaktikanta Das.
Both the Reserve Bank of India (RBI) and the Securities Exchange Board of India (Sebi) have implemented some of the recommendations. But to meet all of the 29 recommendations of the committee, the government has to do some legislative changes.
Delivering the valedictory speech at a summit on corporate bonds in BRICS countries, organised by the Confederation of Indian Industry (CII), the finance minister said the corporate bond market has to be developed to finance the capital needed for huge amount of infrastructure projects currently in implementation.
The country has to continue spending on railway projects, creation of smart cities, migration of rural population to urban areas and to cater to housing, roads, ports, airports, roads, renewal energy, hygiene and sanitation, healthcare, education.
“A lot of activities are going on in the infrastructure space and we have our hands full,” said Jaitley. In fact, India needs to continue to invest in these fields so that economic growth remained buoyant, said Jaitley.
However, the banking channel won’t be enough to take care of the financing, considering the huge bad debt pressure the lenders were facing due to slowdown in some sectors, he said.
At the sidelines of the event, Das said India was at the lead of developing an independent rating agency for BRICS countries. “Among the BRICS countries, India is now trying to develop a BRICS rating agency, which will be jointly developed by the BRICS member countries,” Das said, adding the agency would rate various instruments in BRICS countries as well as other countries.
“There is a need to develop new credit rating agencies in the international scenario. We have some very good credit rating agency in India itself, but I think there is a need for a multilateral agency to develop,” Das said on the sidelines of the CII event.
However, speaking at the same event earlier, RBI Deputy Governor R Gandhi said there should not be any unrealistic expectations from the corporate bond market and the notion that the bond market will take care of infrastructure need is not right.
“Many European countries have achieved economic success based largely on a bank financed model. So when we talk of developing corporate bond markets we must be realistic about our goals,” Gandhi said in his speech at the event.
“More importantly, we must not be blinkered in squeezing bank finance to force-feed the corporate bond market. We would do well and act wisely if we keep our efforts in this perspective,” Gandhi said.
Speaking at the same event, Sebi chairman U K Sinha said the Bankruptcy code will protect the bondholders, leading to the development of the bond market.
“The issues of the rights of bondholders has got got a flip through the bankruptcy code. A lot of positive steps have been taken to protect the bondholders , however, I must add that a lot needs to be done to enhance liquidity in the bond market. In areas, like market making and using corporate bonds as collaterals, are among things which are needed,” Sinha said.
In case of Masala bonds, or rupee denominated bonds, the government is unlikely to relax the withholding tax requirement, said Praveen Garg, joint secretary (financial markets), department of economic affairs.
“If we withdraw the tax issue (for Masala bonds), it would be discretionary and will distort the level playing field between investors (of onshore and offshore bonds),” said Garg.
