A faster expansion of on-shore credit derivatives market can help the banks manage their credit risks prudently and help diversify their credit portfolio in a much larger way.
Participating at the panel discussion on Thursday titled ?India?s Credit Derivatives Market- a promising future??, which included Lawrence Seah, head of south asia credit sales, JP Morgan, Anirban Lahiri, managing director, Deutsche Bank, Sandeep S Gill, managing director, DBS Bank, Jayesh Mehta, managing director DSP Merill Lynch, Terry Koh, of Barclays Capital, opined there was a huge potential in both on-shore as well as off-shore markets for expanding the derivative products involving Indian banks and corporates.
??The off-shore credit derivative market of Indian companies is a meagre $10 to $15 billion. But has the market has a huge appetite for Indian papers. Each overseas bond issue can create a 20 times mulitple marke in credit derivatives,?? said Gill. According to Koh, a precondition for a sound derivatives market, however, is full capital account convertibility.
Credit derivatives improve the availability, quality and timeliness of information in credit markets , thereby facilitating efficient price discovery, said Shilpa Kumar, general manager, ICICI Bank.
As credit pricing becomes increasingly more market based, the extension of bank credit would become less subject to bank specific factors, he said. Dispersion of credit risk across a wider base of market participants helps reinforce the stability of the banking system, he explained.
Proportion of bank loans to GDP is 36% as compared to a figure of only 4% for corporate debt to GDP indicates a very high level of bank intermediation, said Kumar.
The domestic corporate bond market has remained stagnant for last 3-4 years at $ 4 billion per annum.