The Hindu Business Line : Panel suggestion for deepening market — Uniform stamp duty on corporate bonds needed

A market-making scheme for corporate bonds should be evolved that could include large intermediaries such as banks, primary dealers, and investment banks.

New Delhi , Jan. 30

A HIGH-LEVEL committee set up by the Ministry of Finance to study ways to enhance the vibrancy of the corporate debt market has suggested that the Union Government impress upon the State Governments the need to bring about a uniform stamp duty structure across the country.

The High-level Committee on Corporate Banks and Securitisation, headed by Dr R.H. Patil, has also said that "the Government may bring about appropriate amendments to legislation for removing applicability of tax deduction at source (TDS) on corporate bond."

On stamp duties, the panel said: "There is an urgent need to address the issue of differential stamp duties levied by various State Governments on debt instruments. As stamp duty is a State subject, the Government may coordinate with the State Governments to bring uniformity in the application of stamp duties on corporate bonds."

It has also suggested that a separate limit be set for FII investment within the overall country cap for debt.

To enhance the issuer base and as an incentive to corporates to float debt instruments, the time and cost for public issuance and the disclosure and listing requirements for private placement should be reduced and made simpler.

Banks should be allowed to issue bonds of maturities of over five years for asset-liability management purposes and not only for the infrastructure sector as they do currently.

Staying with the banking sector, the committee said that given the growing requirement of capital by the banks, the RBI could set "appropriate regulatory limits" when they subscribe to bonds issued by other banks.

This would encourage other entities to subscribe to bonds issued by other banks.

A market-making scheme for corporate bonds should be evolved that could include large intermediaries such as banks, primary dealers, and investment banks.

"A suitable framework needs to be put in place that incentivises efficient market-making and considers support mechanisms that market makers need for this purpose, including permission to undertake repos in corporate bonds."

On the securitised debt market, the report said that to promote the segment, the Government "should consider establishing an appropriate institutional process to evolve a consensus across States on the affordable rates and levels of stamp duty on debt assignment, pass through certificates, and security receipts."

It has also suggested creation of specialised debt funds for financing the infrastructure sector.

"There is a strong case for creation of specialised debt funds to cater to the needs of the infrastructure sector."