For an active corporate bond market

The creation of an active corporate bond (CB) market is becoming increasingly urgent. Asset Reconstruction Companies (ARCs) need large-scale financing and are asking banks to lend to them. Instead, they should raise funds by issuing bonds. The government’s chief economic adviser, Sanjeev Sanyal, has rightly called on non-bank financial companies (NBFCs) to step up credit provision in sub-AAA segments. And, the way forward is certainly to have a thriving CB market encompassing various risk-reward profiles for savvy investors. A risky covered bond market is waiting to take off, but they can hardly be called “junk bonds” because the upside potential can be high in a recovering market.

Furthermore, India is expected to be included in global bond indices in early 2022. To tap the greater availability of capital that this would allow, the CB market needs to be active, with plenty of financial instruments to properly manage the risks of credit, currency and interest rates. . It is true that OC issuance has increased significantly over the past year. But it is a fact that most CBs are privately placed, are of superior investment grade like AAA and AA, and issued on a fixed rate basis. And, such an opaque market design ironically hampers the efficiency and oversight of the Indian CB market with its enormous growth potential.

We need to take better advantage of the easier cost of funds in mature financial markets and mobilize for an active corporate debt market, to finance the National Infrastructure Investment Pipeline projects of over Rs 100 lakh crore . Note that long-term investors like pension funds and insurance companies tend to prefer higher-rated bonds. But infrastructure bonds are more likely to be rated at most BB+. Hence the urgent need for institutional credit enhancement of CBs to revive investors’ appetite. Additionally, RBI needs to finalize its draft standards for CB insurance products such as credit default swaps. Market makers for CBs would be helpful. The central bank must also use CBs in its liquidity management operations.