Reserve Bank of India (RBI) governor YV Reddy has said the central bank is committed to permitting market repos in corporate bonds. However RBI has set some conditions for facilitating such a move. ?RBI should be assured of availability of efficient price discovery through significant increases in public issues as well as secondary market trading, and an efficient and a safe settlement system, based on DvP III and STP, is in place,? said Reddy while speaking on ?Developing Debt Markets in India: Review and Prospects?. Reddy had participated in the meeting of Central Bank governors of Asia, Latin America and the Caribbean.
Reddy said in the medium term, considering the overall macro-economic situation, the ceiling for foreign investment in both government securities and corporate debt will continue to be calibrated as an instrument of capital account management.
In particular, a more liberalised access to foreign investment would be appropriate when, among other things, an efficient and safe settlement system is well entrenched, aggregate consolidated public debt to GDP ratio reaches a reasonable level, say less than 50%, and the corporate debt market acquires depth and liquidity with significant role for insurance and pension funds in India, he said.
Reddy also hoped the recommendation of the Patil committee will be acted upon soon. ?The Patil Committee has recommended two important measures to be initiated by the Government, namely rationalization of stamp-duty, and abolition of tax deduction at source, as in the case of government securities,?? he said.
The development of a corporate bond market in India has lagged behind in comparison with other financial market segments owing to many structural factors. While primary issuances have been significant, most of these were accounted for by public sector financial institutions and were issued on a private placement basis to institutional investors.