India needs to further develop corporate bond markets: RBI deputy governor

Says RBI will review investment limits for overseas institutional funds once their quota is exhausted

The development of corporate bonds has "not been too satisfactory", Reserve Bank of India Deputy Governor R Gandhi said on Monday, calling the huge supply of government bonds one of the impediments.

Speaking at a debt market summit in Mumbai, Gandhi also called for a "reassessment" of the role played by pension funds and insurance companies in corporate bond markets. Both categories of investors face limitations in investing in corporate debt.

"The progress in the growth of corporate debt segment has not been too satisfactory for our liking," Gandhi said.

Gandhi also called for corporate bond market infrastructure to be brought at par with that of the government bonds market, saying it would improve liquidity and enhance transparency.

 

He said allowing re-issuance of corporate bonds can help in market development, but warned that companies should ensure that does not lead to redemption pressures.

The RBI has been monitoring foreign inflows into corporate bonds and will review investment limits for overseas institutional funds once their investment quota is exhausted, he added. 

Overseas demand for corporate bonds has surged since the quota for government bonds was exhausted last year, with three-fourths of the $51 billion foreign investment limit on corporate bonds already utilised.

Gandhi added the central bank has to tread a fine balance in terms of the foreign holdings of Indian bonds given the need to be mindful about the country's external debt.

"We are very cautious of the trade-off that we need to keep in mind while permitting foreign flows into the debt segment," Gandhi said.

"Therefore, consistently we have been monitoring the level of flows coming into this (corporate bond) segment."

Corporate bonds are regulated by capital markets regulator Securities and Exchange Board of India (SEBI).