Amid continuing liquidity concerns, the Securities and Exchange Board of India today said it will soon release a consultation paper on developing a robust secondary debt market.
The domestic corporate bonds market is worth $287 billion, around 14 percent of GDP, way lower than the equity markets that is around 80 percent of GDP.
There clearly is an opportunity and need to deepen the bond market given the crisis in the banking system due to the pile of bad loans, which is feared to cross 12.6 percent by March, SEBI Chairman Ajay Tyagi said at a conference on corporate bond market organised by industry body Assocham. And this cannot be achieved without a robust secondary market, as liquidity is of paramount importance, he added.
The final guidelines will be drafted in consultation with all the stakeholders.Ajay Tyagi, Chairman, Securities and Exchange Board of India
The stress in the banking sector has forced many corporates to raise funds from bond markets in recent years, which will continue to grow given the huge need for infrastructure development, he said.
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“SEBI is in consultation with the Reserve Bank of India and the government, and will take steps to enhance a secondary market for corporate bonds, so that liquidity improves,” Tyagi said.
The government has asked SEBI to consider mandating large corporates to meet one-fourth of their financing needs through bond markets. The infrastructure sector only needs nearly $4 trillion in the next 10 years, which cannot be funded by banks alone.
Tyagi noted that the volume of private placement of bonds has taken off well in the last few years after SEBI ensured that there is transparency in this platform. “We will continue to work in more transparent ways and make it easier for companies to raise money through this platform. However, liquidity in the secondary market is a big concern, we need to do lot of things to increase liquidity,” he added.
He also expressed concern over the continued tightening in bond yields since the past six months due to higher interest rates.