The Hindu Business Line : Survey moots tax sops for long-term debt market

Key suggestions
Remove 10 per cent voting rights cap in private and foreign banks.
Need to allow trading of directed credit obligations among banks and other financial institutions.
All financial market regulations should be brought under SEBI for integrated development.
Liberalisation and development of spot and futures currency markets.

Our Bureau

New Delhi, July 2 Signalling the Government’s commitment to develop long-term debt markets in the country, the Economic Survey 2008-09 has called for tax incentives to build-up such markets.

To broaden the market, the Survey has said that the investment norms of insurance and pension funds should be liberalised. It has also suggested that the Government consider a guarantee mechanism (fund) for credit enhancement of long-term infrastructure debt.

On the banking sector, the Survey has pitched for removal of the 10 per cent voting rights cap in private and foreign banks. It has said that voting rights in banks should be aligned with equity holdings. The Banking Regulations (Amendment) Bill 2005 proposes to do away with this voting right cap, currently in place for banks other than public sector banks. The Survey has called for passage of this Bill.

Besides suggesting phased increase in FDI limits in banks, the Survey has called for greater entry of foreign banks with tighter regulations on investing foreign entities.

The Survey has stressed on the need to allow trading of directed credit obligations among banks and other financial institutions. This will allow and encourage the development of financial institutions that can specialise in and exploit economies of scale and scope in unbanked/low banked areas and sectors.

Regulations

On the regulatory front, the Survey has said that all the financial market regulations should be brought under SEBI to bring about integrated development.

As regards commercial borrowing, the Survey wants the rights to such borrowing be auctioned within the already defined limits. There should be in-built preference for long-term borrowing. It has called for introduction of repos and derivatives in corporate debt, standardised credit default swaps that can be traded on the exchanges (subject to stricter than normal limits on eligible participants) and exchange-traded interest rate derivatives such as interest rate swaps.

The Survey has also said that high net worth individuals should be allowed to register and invest directly through authorised Indian investment intermediaries. This will allow a ban of indirect ways of investments such as P-Notes.

It has called for liberalisation and development of spot and futures currency markets (exchange traded). The Survey also wants the position limits for domestic companies to be raised and trading in SDR and SDR currencies to be allowed.

More Stories on : Economic Survey | Debt Market | Income Tax

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page