New Delhi: Nearly 10-15 per cent of funding requirements of large corporates should be met through the corporate bonds market, a senior Reserve Bank of India (RBI) official said in Mumbai on Monday.
With the help of suitable policies, there has been considerable improvement in the corporate bond market. Total issuance increased from Rs. 1.7 lakh crore in FY09 to Rs. 3.8 lakh crore in FY13. Similarly, trade volume rose from Rs. 1.5 lakh crore to Rs. 7.4 lakh crore during the same period.
"With considerable policy and regulatory reforms since 2005, the onus to scale up development of the corporate bond market hinges on corporates now. Ten per cent to 15 per cent of funding requirements of large corporates should be met through this route," RBI Executive Director Chandan Sinha said at a summit on the corporate bond market organised by the Confederation of Indian Industries (CII).
Mr Sinha said that this would help diversify risk away from the banking system and there is a need to have implicit faith of retail investors in the corporate debt market.
Speaking at an interactive session, Economic Affairs Additional Secretary K P Krishnan said that despite the stated policy of corporate bond market development for the last one decade or more, a high dependence on banks for infrastructure financing has been a costly failure for the economy.
"There is a sense of urgency in developing a corporate debt market due to the huge funding requirement in future," Mr Krishnan said.
Infrastructure development which is ought to have been funded by the corporate bond market is done through bank funding which has impaired financial conditions of both banks as well as infrastructure developers, he said.
He stressed that policy and regulatory reforms in the areas of instruments, participants, market infrastructure and bankruptcy process are the four pillars to develop a corporate bond market.
The first three pillars would ensure that the corporate bond market would develop high grade instruments, whereas the fourth pillar would provide stability to lower-rated issuances, he said.
However, a stronger bankruptcy code would not be a complete panacea for the development of a bond market, Mr Krishnan said.
Corporate bond market instruments need to be seen as deeply connected to other financial products for which different financial sector regulators like the RBI, market regulator Securities and Exchange Board of India (Sebi), Insurance Regulatory and Development Authority (IRDA) and Pension Fund Regulatory and Development Authority (PFRDA) would have to come on a common platform, he said.
He also emphasised that the country does not want to develop a bond market to be subscribed by banks only and companies should consider raising funds from the public through the debt market, rather than depending on leveraged institutions.