The Hindu Business Line : Repo in corporate bonds likely in 2010

Corporate bonds are likely to become ‘repo-able’ in 2010, more than five years after this reform proposal was mooted, a top Finance Ministry official said here today.

Allowing repurchase of corporate bonds on the exchanges is expected to give a much needed fillip to the development of listed corporate bond market in the country.

The Finance Ministry also said on Wednesday that there was no immediate plan to hike the existing corporate bond investment limit of $15 billion set for foreign institutional investors (FIIs).

“There is no question of reviewing the investment limit now as the existing one is still under-utilised. The 80 per cent utilisation level has not yet been reached,” Dr K. P. Krishnan, Joint Secretary, Finance Ministry, told reporters on the sidelines of a conference jointly organised by ICRIER (Indian Council for Research on International Economic Relations) and Germany-based InWEnt here on Tuesday.

In June 2008, the investment limit for FIIs in corporate debt was increased from $1.5 billion to $3 billion. The limits were further increased to $6 billion in October 2008 and to $15 billion in January 2009.

No super-regulator

Dr K.P. Krishnan

Meanwhile, the Finance Secretary, Mr Ashok Chawla, said at the conference that there was no proposal for having a super-regulator for the financial sector. He however felt that all financial trading activities should come under one regulator. Mr Chawla also said that the focus needs to move towards domain based regulation from entity based regulation.

Later, asked to comment on the capital inflows into the country, Mr Chawla reiterated Government position that no capital control actions are contemplated for now.

“The inflows have increased in the recent past. It was expected. Financial markets in industrial economies de-freeze, money will be available and money will move to countries where returns are better. Money has been coming into India and as of now, it is not a cause for concern”, Mr Chawla added.

He highlighted that both the RBI and SEBI are watching the situation in terms of inflows and equity markets respectively. “We don’t see the need for specific actions in this regard”, Mr Chawla said.

On the issue of development of listed corporate bond market, Dr Krishnan noted that there are problems on both supply side and demand side. The corporate bond market in India is reasonably large sized but entirely privately placed.

“It is a misnomer to call them corporate debt as most issuers are public financial institutions. Typical non-financial corporate accessing the bond market particularly the listed bond market is what is missing. The reason is a chicken and egg problem. The basic issue is lack of liquidity,” he noted.

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