Bond mkt needs to be standalone to de-risk banking system

Mumbai, Aug 04 The momentum towards the goal of overall economic growth in the country can be only achieved through focus on all-inclusive growth through enhanced capital formation, accelerated infrastructure development and large-scale asset monetization, the role of debt markets or corporate bond markets to finance this growth gets accentuated, said Ashwani Bhatia, Whole Time Member, Securities and Exchange Board of India (SEBI) at ASSOCHAM 6th National Summit & Awards Corporate Bond Market in Mumbai.

“Banks can't do this alone, equity markets can't do it alone. We need the debt markets. For the past few years, debt markets have emerged as an alternative to the banking sector, but only for top-rate firms. There is the ravineed for mobilization of funds from the corporate foreign market as it provides alternative sources of finance and supplements the banking system to meet the requirements of the corporate sector to raise long-term investments. This technique acts as a stable source of finance when the equity market is volatile, loss of funds is suitably tailored, asset and liability profiles and at the same time reduce the risk of immaturity. Globally, bond markets are institutional in nature,” he said.

“Typically, buy and hold investors rule this market. It is not dependent on them. Development of corporate bond needs sustained participation of long-term institutional investors across the credit and maturity curves. The bond market needs to be standalone and growing on its own and ultimately de-risk the banking system. This I guess is very important for us as regulators. If this market develops, it actually de-risks the banking system because it takes away creditors away from that area. Intermediaries that support the capital market like the venture trustees and CRAs or credit rating agencies provide the necessary market infrastructure and are the bulwark of the success of the market. CERI has been taking steps to regulate interest to ensure that it provides necessary support CERI has been taking steps to regulate interest to ensure that it provides necessary support to participants”, he added.

Innovation has been a driving force in the corporate bond market, with regulators like SEBI and RBI pushing for progress. Electronic debt-building platforms and price discovery mechanisms have been introduced, and mutual funds and other regulated entities are encouraged to participate actively. Such initiatives are crucial to creating a robust bond market that fosters growth and stability.

Let us embrace these principles of innovation, simplicity, and global access to build a bond market that empowers our economy, strengthens infrastructure projects, and paves the way for a prosperous future,” said Ajay Tyagi, Former Chairman, Securities and Exchange Board of India (SEBI).

“Innovation, simplicity, and global access are the keys to unlocking the true potential of the bond market and as we aspire to elevate the bond market to the same stature as equities, we must address its underdeveloped and illiquid segments. A liquid and deep bond market is a prerequisite for our journey towards becoming the third-largest economy by 2028 and a developed country by 2047. The importance of a vibrant bond market becomes evident when we consider financing infrastructure development. Banks alone cannot handle infra financing, and relying solely on budgetary allocations is not sustainable. To overcome these challenges, we need a well-regulated and developed bond market that caters to a broader range of issuers and ratings,” he added.

Echoing a similar view, CS Setty, MD, SBI, said, “We are the largest investor in corporate bond market and also the largest issuer in bond market. On Monday we approached our 15-year infrastructure bonds and the tighter spread in the 15-year curve. What is interesting is that while the issue size was 5+5 the response was immense almost all 21,000-25,000 crore worth bids received which shows that for quality bond there is enough demand in the market. As a commercial banker we always have an existential problem in as far as bond market is concerned for instance SBI runs a book of about Rs 15 trillion of which Rs 1.7 trillion is corporate bond. What we are doing as a commercial banker is that we are engaging with a corporate in a holistic manner as Corporate access to the funding is always by way of loans because banks are more comfortable lending by way of term loans.”

Varun Sridhar, CEO, Paytm Money, said, “Consumers understand the power of simplicity. They do not want complication. ‘Mutual Funds sahi hai, Bonds aur sahi hai’ After 10 years this could very likely be a reality considering this is the decade for bonds. It is very likely that if we are able to make the purchase of corporate bonds a very simple, safe and transparent process, 100 million bond investors in the next 10 years does not seem a distant reality.”

Bonds need to be broken down into Rs10 face value and introduction of Bond SIPs is something that can be looked at to encourage maximum retail participation and help investors create bond baskets. Having an organisation similar to AMFI for Mutual Funds could be looked into for developing corporate bond markets in India. India is a country of many languages so the common man’s language should be the equity/bond market language.

These are interesting times and India is at the cusp of exponential growth and it is here that the corporate bond market becomes prominently relevant. Traditionally bank based financing has been critical for infrastructure financing which has its own drawbacks. Therefore, the need of the hour is market based financing to promote macro financial stability. “In order to promote and maximise retail participation, making things simple for Gen Z similar to an e-comm transaction is very important. A segregated structure in Demat accounts makes it extremely simple for a retail investor to invest and eventually leads to refinancialisation of markets. Coupled with the efforts taken by SEBI and RBI, corporate bond markets can be made simple, unified, objective and fair for the individual investor,” said Nehal Vora, MD & CEO, CDSL.