Corporate bonds

Must improve business data integrity in corporate bonds: RBI Deputy Governor

Highlighting the challenges faced in deepening the Indian corporate bond market, Reserve Bank of India (RBI) Deputy Governor T Rabi Sankar said that improving the quality of trade data in the market and the adoption of a single evaluation method were key objectives to strive for.

“There have been comments from market participants on the need to improve the timeliness and integrity of primary and secondary market transaction data in the corporate bond market,” Sankar said during his speech. keynote at the Bombay Chamber of Commerce and Industry on Wednesday.

“It is undoubtedly a low-hanging fruit that we can aspire to. It was also stressed that there is a need for a uniform valuation methodology for all investors,” Sankar said, adding that a evaluation by an independent lead administrator would be ideal.

Underscoring the importance of high-quality and timely information, Sankar pointed out that in the government bond market, information about each transaction is disseminated in real time. Government bond valuations are conducted by Financial Benchmarks India.

Sankar said that while trading in the secondary corporate bond market had not increased in line with market size, the challenges of improving liquidity in the domestic corporate bond market were not peculiar to India. “Comparable data on corporate bond market turnover rates from different jurisdictions is not readily available, but rough valuations do not indicate that the Indian corporate bond market lags behind its peers in this regard. regarding secondary market liquidity,” he said.

The aggregate settled value of transactions in the secondary market of corporate bonds increased to 14.37 trillion rupees in 2021-22 (April-March) from 4.5 trillion rupees in 2010-11, Sankar said.

Sankar noted that one of the obstacles to a deeper corporate bond market was the fact that the market was dominated by highly rated issuers, pointing out that in the previous fiscal year, 80% of issuance in value came from AAA rated entities.

In the previous financial year, ratings were assigned to 1,235 corporate debt securities amounting to Rs 22.5 trillion. Of these, 22.5% were rated AAA and 29% were rated AA. Only 5.3% of shows were substandard, Sankar said.

“While we can discuss the reasons for this trend, it is clear that the corporate bond market is largely serving the needs of top-rated companies,” he said.

The RBI Deputy Governor also pointed to the overwhelming tendency of companies to prefer private placement of bonds to public issuances despite the fact that the latter offered well-documented benefits in terms of transparency and efficient price discovery.

In the previous fiscal year, the amount of funds raised through public issuance of corporate bonds was Rs 11,589 crore, barely 2% of the amount raised through private placements of worth 5.9 trillion rupees, Sankar said.

“Sebi has made efforts to make the private placement process more transparent and efficient, such as introducing the electronic bidding process on the stock exchanges,” he said.

Sankar said that due to a limited investor base for capital bonds issued by Indian lenders, many have been forced to tap global markets. There is a need to examine the factors behind this phenomenon and determine whether they were aligned with international norms and standards, Sankar said.

Pointing to a similar trend of Indian companies accessing global markets for fundraising, which conforms to environmental, social and governance (ESG) standards, Sankar said there was a need for increased transparency to facilitate better conditions for ESG obligations.

“The announcement in this year’s Union budget referring to the mobilization of resources via ‘green bonds’ should also provide a price anchor for ESG bonds in due course,” he said.

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