New Delhi: Inviting all stakeholders to come forward with suggestions to boost the bond market ecosystem, Sebi chairman Ajay Tyagi has said there is an immense opportunity for development of this market in the backdrop of the NPA crisis in banking sector.
He also said rating agencies have an important role as gatekeepers in maintaining trust of investors in bond market and Sebi would consider further necessary changes in norms for them in consultation with stakeholders, after a number of steps taken to rationalise their governing structure and for close monitoring of ratings. Tyagi was speaking at a seminar organised by Crisil on developing the debt market.
He noted that a vibrant capital market, both equity and bond, has to play a pivotal role to facilitate fund mobilisation for sustaining the country's projected economic growth momentum. The role of corporate bond market becomes even more important now, given the stress on the banking sector.
During the last five years, nominal GDP grew by over 67 per cent. Over the same period, outstanding bank credit increased 63 per cent, while outstanding corporate bonds surged over 117 per cent, from Rs 12.6 trillion to Rs 27.4 trillion. Financing through equity, during the same period, was over Rs 6.2 trillion, he pointed out.
The fiscal year 2016-17 can be marked as a defining year in this context, as funds raised from the corporate bond market touched an all-time high of Rs 6.7 trillion, surpassing the amount of bank credit.
In view of the larger complementary role that debt market has to play alongside bank credit for financing economic activities, several policy measures have been taken by the government and regulators to develop the corporate bond market, the chairman said.
Sebi chief highlighted the role of credit rating agencies (CRAs) as important gatekeepers in maintaining the trust of debt investors. During the last one year, Sebi has taken a number of steps to rationalise the governing structure of CRAs and has emphasised on close monitoring of ratings.
"More needs to be done and we would consider bringing in required changes in consultation with stakeholders," he added. "There is an opportunity for development of bond markets in the present NPA (non-performing assets) crisis.
Of course, the volatility in bond yields in the last few months has roiled the markets thereby impacting the raising of bonds.
"However, in the medium to long term, there seems to be no other option but to shift from bank financing of projects to bond funding,"he added.
Tyagi also said the corporate bond market could get a boost if sectoral regulators of pension funds, provident funds and insurance firms could allow their regulated entities higher exposure in the segment.
"Institutional investors such as pension funds, provident funds and insurance companies can generate far higher demand for longer dated corporate issuances. "They are, however, guided by investment norms prescribed by respective sectoral regulators," he said, adding that relaxation of norms to allow higher allocation to the corporate bond market would help earn incremental returns and generate demand for corporate bonds.
More importantly, he said since these institutions are long-term investors and typically hold investments till maturity, they can act as ideal counter parties to infrastructure firms that require funding through longer-dated instruments. Besides, the regulator said it is examining enhancing the framework for 'on tap' bond issuances by corporates.
"We are working on operationalising the 2018-19 budget announcement which mandates large corporates to raise 25 per cent of their financing needs from the bond market. Sebi would be shortly issuing the operational framework (for the same)," Tyagi said.
He said Sebi has taken slew of measures to develop a vibrant corporate bond including issuing a framework for electronic book building mechanism to provide enhanced transparency in issuance of debt securities on private placement basis.
Further, the regulator enhanced standards for CRAs for timely monitoring of credit quality of bonds; reduced the time taken for listing of public issue of bonds from 12 days to 6 days; abolished the requirement of keeping one per cent security deposit for public issue of debt securities by issuer among others.