The market regulator will discuss with stakeholders before finalising the framework for corporates.
The Securities and Exchange Board of India (SEBI) will soon come out with a consultation paper on making it mandatory for large corporates to meet one-fourth of their financing needs through bond market as envisioned by the Union Budget FY18-19, according to chairman of the capital markets regulator Ajay Tyagi.
“Given the relatively nascent stage of development of bond market, such framework has to have a soft touch approach. It will be finalised in consultation with stakeholders,” said Mr. Tyagi while inaugurating an ASSOCHAM national conference on corporate bond market.
Noting that lot of things needed to be done for increasing liquidity in the secondary market, he said that the SEBI (Securities Exchange Board of India) would move towards that direction in consultation with RBI and government. “While private placement of corporate bonds have shown significant uptake especially since FY16-17 onwards, there are genuine concerns about liquidity in the secondary market,” he said.
Scondary market products such as interest rate futures, credit default, swaps, repo and others had o be made more attractive to the participants for development of secondary market in corporate bonds, he a added. “Efforts made in development of private placement of bonds have to be necessarily complemented with increase in liquidity in secondary market,” he said.
Though fund raising from bond market had been really good in the last two years, the bond yields had been tightening for the last 6-8 months due to factors such as interest rate increase by the U.S. Federal Reserve, rising crude oil prices, depreciating rupee and concerns over inflation.
Mr. Tyagi said that the stress in banking sector had helped many corporates to raise funds from the bond market and this was one of the reasons for increase in raising of bonds from electronic bidding platform in the recent years. “Clearly, there is an opportunity to deepen the bond market amidst the present NPA (non-performing asset) crisis. The large exposure of the RBI is a step in the right direction, though effectiveness of the same is yet to be measured,” he added.
Mr. Tyagi further said that higher allocation by institutional pools of domestic savings such as insurance, pension and provident fund to the corporate bond market would aid these savings to earn incremental returns and generate demand for corporate bonds.
He also informed the audience that the SEBI had not received any definitive open offer proposal from public sector insurer Life Insurance Corporation of India (LIC) on its deal with state-owned lender IDBI Bank.
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