Developing secondary market key to revitalising corporation bond market, say experts

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Published: September 27, 2019 12:48:31 AM

In July 2019, banks’ outstanding credit to non-banking financial services (NBFCs) rose by 34.5% from the the same period of the previous year to Rs 6.36 lakh crore, as per RBI data.

The participants also discussed the need to properly fund non-AAA-rated bondsThe participants also discussed the need to properly fund non-AAA-rated bonds

Revitalising the corporate bond market has been a subject of much discussion, but it remains a work in progress. On Thursday, market participants in a session chaired by Securities Exchange Board of India (Sebi) whole-time member Ananta Barua at an event organised by FICCI discussed the importance of developing the secondary market as well as the need to properly fund non-AAA-rated bonds.

R Govindan, executive vice-president – corporate finance & chief risk officer at Larsen & Toubro, pointed out that after the IL&FS crisis escalated, investors are only putting their money in AAA-rated and state-issued corporate bonds. “Mutual funds and banks’ money is flowing into certain set of companies as directed by the regulator. The companies which have stressed assets on their books will be pushed to more trouble if they do not get any funding due to risk aversion.

Investors need to take the risk to relieve the stressed sector,” he said.

Due to the lack of secondary markets, where investors can trade their securities, there is a lack of liquidity in the corporate bonds market which is the major hold back that the market is experiencing, said Jujhar Singh, global head high yield & head capital markets (South Asia) at Standard Chartered Bank.

Most of the issuance in the corporate bond markets is done via private placement where banks and mutual funds have been the major participants. “More than half of the debt in corporate bond market is raised by AAA-rated companies for a duration of two to five years. While other companies, especially non-banks in India have to go to the banks to raise funds,” Singh said.

In July 2019, banks’ outstanding credit to non-banking financial services (NBFCs) rose by 34.5% from the the same period of the previous year to Rs 6.36 lakh crore, as per RBI data.

Samar Banwat, executive director at NSDL, supported the argument of having secondary market for the corporate bonds. “Just like equity markets, retail investments should be allowed in corporate bonds to improve the liquidity,” he said.

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