India should revive its flagging corporate debt market by acting on the recommendations of a government panel and taking a few simple steps, the chairman of the main securities clearing house said.
Saikat Chatterjee & V Ramakrishnan
MUMBAI: India should revive its flagging corporate debt market by acting on the recommendations of a government panel and taking a few simple steps, the chairman of the main securities clearing house said.
The volume of corporate debt traded on the National Stock Exchange declined to Rs 10,600 crore in 2005/06 from Rs 17,200 crore a year earlier, and bankers say this is in part due to high registration costs for debt issues as well as a lacklustre secondary market.
“Worldwide experience shows fund raising via bonds is more than equity,” R H Patil, chairman of the Clearing Corporation of India, told Reuters in an interview. “India needs huge funds for funding its infrastructure needs and corporate debt markets must provide the bulk of the financing.”
Patil said little had been done to set the ball rolling on recommendations to deepen the corporate bond market made by a committee he had chaired, even though the report had been submitted to the government more than a year ago.
The steps suggested by the committee included widening the investor base and bunching issues together to create secondary market liquidity and improve trading volumes.
Laborious disclosure regulations and an almost non-existent secondary market has meant corporate debt trading is lacklustre and debt issues are predominately confined to private placements.
Issuers usually take the private placement route as this has fewer regulations than publicly listing debt.
According to a report by rating agency Moody’s Investors Service, privately placed debt is 10 times greater than publicly listed debt.
Patil said cutting registration costs and making them uniform across states would also attract more issuers. Registration costs range from 0.25-15% of the issue size.
Disclosure requirements for listed bonds should be reduced and banks, primary dealers and investment banks should also promote market-making, he said.
Prime Minister Manmohan Singh has said India needs to deepen its capital markets to raise funds to improve infrastructure and boost farming and manufacturing. A panel of experts has estimated it needs about $1.5 trillion to upgrade infrastructure.
A huge federal borrowing plan has also elbowed out demand for corporate debt. India funds about 70% of its fiscal deficit via market borrowings.
With banks required to park 25% of their deposits in federal bonds and bank credit growing at an annual 30% in the past three years, demand for corporate debt from banks and pension funds — the biggest investors in fixed-income instruments — is limited.
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