The regulatory authorities should permit secondary market trading in bills rediscounting and term money receipt on the lines of certificate of deposit, said Y P Narang, managing director of PNB Gilts.
Speaking at the seminar on 'The Future of India's Debt Market 1997', hosted by Invest India Economic Foundation and Securities Trading Corporation of India (STCIL), Narang said banks should fix the target for achieving current or redemption yield at the end of each financial year or more frequently. Budgeted yield should be compared with actual yield and the deviations analysed, he added.
Narang said the Reserve Bank (RBI) should permit dealing in all debt instruments with all types of clients on 'when issued basis'. Besides, the government should publish a calendar of issues for the coming year so that treasury heads can plan their funds flow and securities requirement. He wanted the authorities to widen the scope of repo and reverse transactions, too.
Narang said the market was constrained by insufficient data on the depth in the debt market, frequent changes in the regulatory guidelines for valuation of investment and lack of standard trading practices, among other things.
He said the declaration of basis of yield to maturity (YTM) should be on a quarterly basis, instead of yearly, so that banks know their actual financial position at regular intervals and the funds managers adjust position accordingly.
Joining issue with Narang on this subject, Shailendra Bhandari, executive treasurer of HDFC Bank, said the yields announced by RBI are not necessarily market-related and suggested that the central bank should give up this practice.
With a view to kick-start the debt market segment on National Stock Exchange (NSE), Narang said the deals be done only "on-line" basis and not by way of reporting to NSE.
To an extend, he said, the trading system at NSE was also to be blamed although there was a quick rebuttal from the NSE deputy managing director Ravi Narayan.
Pavan K Sukhdev, country head India (treasury and global markets), Deutsche Bank, spoke on the need for rupee derivatives and their benefits in the Indian context.
In his presentation, Subodh Shah, chief credit rating officer, Credit Rating and Information Services (Crisil), said corporates have to grapple with a wide range of risks. For instance, he said, since the beginning of liberalisation there have been sea changes in the operating environment. Many industries like cement and steel are characterised by excessive competition and overcapacity and this has affected the creditworthiness of companies. While the risk factor in cases of many companies have gone up, he said, the Indian banking sector was faced with a huge asset liability mismatch.
He was also critical of what he termed unpredictable changes in regulations governing stock markets. A case in the point was the withdrawal of badla before setting up alternative mechanism. This, in turn, has affected the sentiment of the markets and the trading volumes, he added.
