At this stage of development, banks will continue to remain central to the financial system, and the corporate bond market will play a role, though not the predominated role, according to RBI Deputy Governor H R Khan.
Speaking at a panel discussion on ‘Deepening of Bond Markets’ at the CAPAM 2015 Conference, organised by the Federation of Indian Chambers of Commerce and Industry (FICCI), Khan said, “In the process of trying to develop the corporate debt market, we should not try to bring risk into our banking system by requiring banks to provide unadulterated guarantees and backup support.”
The panel was constituted to identify ways of deepening corporate markets.
The RBI Deputy Governor also felt that “we need to focus on the sovereign debt market, which will provide an anchor for the corporate debt market”. Development of the sovereign debt market is progressing reasonably well, he added.
The Government recently issued 40-Year Papers, which will provide an anchor for long-term bonds.
“Globally, it is the institutional markets that dominate, which will also be the case in India. However, it is more important that in the context of bond market development, what is needed is a sound and robust bankruptcy system. Even though the new Companies Act provides for it, it is not sufficient. The Government is working on addressing this issue,” he disclosed.
Going forward, Khan stressed on the need for more issuances, as more categories of issuers need to be brought on board, for example, municipalities. Since there is a huge requirement for smart city funding, investor classes like PF and insurance companies need to be incentivised.
While more needs to be done to deepen corporate bond markets, the critical points are to ensure a robust bankruptcy system and have the legal architecture in place.
The other panelists in the discussion were Manoj Joshi, Joint Secretary (FM), Department of Economic Affairs, Ministry of Finance; Anshula Kant, Deputy Managing Director & Chief Financial Officer, State Bank of India; Stuart Milne, Group General Manager and Chief Executive Officer, HSBC India; Koushik Chatterjee, Group Executive Director (Finance Corporate), Tata Steel Limited; and Pankaj Vaish, Head Markets-South Asia, Citibank N.A., India.