To promote the corporate bond repo market, regulators should allow mutual funds to participate in repos backed by lower-rated corporate bonds and also raise their investment limits in corporate bonds for guaranteed repos, said Kashinath Katakdhond, managing director, AMC Repo Clearing Limited (ARCL).
Expanding participation and risk appetite
“Regulators should consider expanding the participant base in the corporate bond market, encouraging more investors to take higher risks and support issuers with lower-rated papers. While we aim to gradually include ratings below AA, at this nascent stage, we restrict to AA-rated instruments,” added Katakdhond.
ARCL, which is regulated by both Sebi and RBI, offers clearing and settlement services to all trades executed on exchanges under triparty repo in corporate debt securities.
Repo volume soars, future projections bright
He further said the inclusion of low rated bonds will also help in boosting the overall trading volume in repo market. The total volume on ARCL tri-party repo in August was Rs 55,002 crore compared to Rs 52,175.10 crore in July and Rs 39,725.50 crore in June. The average daily volume surpassed Rs 2,894 crores in August, as per ARCL data.
Primary dealers are the major borrowers, followed by non-banking finance companies and corporates, while mutual funds are on the lending side.
“We crossed volume of Rs 4500 crores on September 30, the highest daily volume since inception. Considering the growing traction, I expect daily volume to reach Rs 15,000 crore in next one year,” said Katakdhond.
He highlighted that there is an increased traction in repo market currently. “The ability to rollover gives both borrowers and lenders the confidence to participate, which has led to good traction. There is enough liquidity in the market now.”
Katakdhond said they are working with the regulator to secure Qualified Central Counter Party (QCCP) status, which would enable greater bank participation. Currently, they operate as a Central Counter Party.