Speaking at an Interactive Session on Corporate Bond Market in India: The Way Forward, organized by CII, Dr K P Krishnan, Additional Secretary, Department of Economic Affairs, Ministry of Finance, Govt. of India stated that despite the Government’s explicitly stated policy of corporate bond market development for the last 10 years, high dependence on banks for infrastructure financing has been a costly failure for the Indian economy.
Infrastructure development which was ought to have been funded by the corporate bond market was done through bank funding which has impaired the financial conditions of both banks as well as infrastructure developers.
Suggesting the four pillars for the development of corporate bond market, Dr Krishnan stressed for policy and regulatory reforms in the areas of Instruments, Participants, Market Infrastructure and Bankruptcy process. From the first three pillars, the corporate bond market will develop high grade instruments whereas the fourth pillar would provide stability to lower rated issuances. However, a stronger bankruptcy code will not be a complete panacea for the bond market development, Dr Krishnan added.
Corporate bond market instruments needs to be seen deeply connected to other financial products for which different financial sector regulators viz the RBI, SEBI, IRDA and PFRDA have to come on a common platform. Dr Krishnan also emphasized India does not want to develop a bond market to be subscribed by banks only and companies should consider raising funds from the public through debt market rather than depending on leveraged institutions.
Also speaking at the Session, Chandan Sinha, Executive Director, Reserve Bank of India, said that with considerable policy and regulatory reforms since 2005, the onus to scale up the development of corporate bond market hinges upon the corporates now and 10-15 per cent of the funding requirements of large corporates should be met through this route which would help diversify risk away from the banking system.
R K Nair, Member (Finance & Investments), Insurance Regulatory and Development Authority mentioned that the corporate bond market has developed over the years in terms of its share in GDP and the overall debt market. Nair was of the opinion that Bond Pricing Agency (BPA) would be helpful as in case of Korea, Mexico and Thailand and AAA rated corporate bonds should be accepted as collaterals by exchanges for risk management.
Nimesh Kampani, Chairman, CII National Committee on Capital Markets and Chairman, JM Financial Group outlined the 5 Is framework for a robust corporate bond market including: Issuers, Investors, Instruments, Infrastructure and Intermediaries. Citing the example of the developed equity market, he further emphasized the need for policy and regulatory reforms under the 5Is framework.
During the session, N Sivaraman, President and Whole-time Director, L&T Finance Holdings Ltd highlighted the core issues and recommendations for the development of the corporate bond market emphasizing on the Debt Redemption Reserve Requirement under the new Companies Act 2013, pass through status for SEBI registered venture capital funds, alternate investment funds and securitisation trusts, asset reconstruction trusts and other regulated pools of funds, issues under SARFAESI Act and investment limits for Provident Funds, Insurance Companies and pension funds.