)
The Reserve Bank of India (RBI) believes that corporates should voluntarily access the bond market for meeting their financial needs as this would lead to development of the market.
“The corporates should voluntarily accessing the bond market for part of their own financial needs,” said Chandan Sinha, executive director, RBI at an event organised by Confederation of Indian Industry.
A suggestion has been made that RBI should compulsory make some funds requirement of these corporates met through the bond market. “This is just a suggestion and not that RBI is active on it,” said Sinha.
Besides that according to Sinha there is a dearth of investors in corporate bond markets despite the various measures taken in the past. “There seem to be the case when there are dearth of investors in corporate bond market despite the measures which have been put in place,” he said.
According to Sinha apart from whatever the regulators and the government are doing, there is something which needs to be done on the corporate side as well.
“From the banking perspective there is an argument that there is a very liberal exposure limits and this would be inhibiting growth of corporate bond market. Perhaps if those limits were not so liberal, and were more as per the international norms, then would have been perhaps an automatic move in corporate bond market. The Basel committee is likely to come up with stricter norms,” said Sinha.
Sinha believes that even if retail do not invest that aggressively in corporate bonds, there is a need to have faith of retail investors so that the money flows into corporate bond market.
“The loans pricing is hardly based on risk based but is based more on negotiated rates based on relationship and competition. Once this is corrected the cost advantage of loans vis a vie the bonds could also narrow or disappear,” said Sinha.
A partial credit enhancement by banks for infrastruture companies is on the anvil. “It is taking more time than envisaged because the time to balance the market demand and regulatory norms have to be there. Perhaps by the end of the month or little later that should be there,” said Sinha.
The other suggestions is that insurance companies should not hold bonds till maturity and probably they should sell short term bonds to the market. “If everybody turns traders or investors then perhaps we may have very volatile market conditions. But to a limited extent perhaps we can do this with some residual maturity,” said Sinha.
“The whole idea of a corporate bond market is to diversify away risks from the banking system . But in India we make banks investors in corporate bonds perhaps to the same extent in which they have their loan exposures” Sinha added.
Insurance Regulatory and Development Authority (IRDA) believes that with the development of government bonds market, the market for corporate bonds shall also develop. “Corporate bond market will develop once the government securities market develops. There should be more retail participation in the g-sec market,” said RK Nair, member at IRDA.
According to Nair infrastructure debt for companies have been recognised and this shall help to move insurance money in that segment.
“We need to develop an arbitrage in benchmark yield curve. We need to have wider range of maturities. Acceptance of collaterals for risk management by the exchanges is a good idea. Liquidity support by the central bank will also help this market to take off. Induction of Collateralized Borrowing and Lending Obligation (CBLO) for corporate bonds will be another good idea,” said Nair.
