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The need for financing infrastructure projects is one of the key reasons why developing a vibrant corporate bond market is essential, according to Subir Gokarn, Deputy Governor, Reserve Bank of India.
“The current debate (over developing a sound corporate bond market) is significantly driven by infrastructure financing,” Gokarn said at a conference on bond markets organised by the Bombay Stock Exchange.
Govt Financing
The 12th Plan has estimated that an investment of $1 trillion will be required in the infrastructure sector in the 2012 to 2017 period. Gokarn said resources of this size would materalise only with the development of a corporate bond market.
Capital, foreign as well as domestic, in infrastructure financing will need facilitation channels. In this context, development of a vibrant corporate bond market is essential, Gokarn said.
At present, 80 per cent of the US treasury bonds are held by the private sector, while about 85 per cent of the Government bonds in India are held by the RBI, LIC and commercial banks, said another panelist at the event.
The deputy governor also pointed out that some of the East Asian economies such as Malaysia and Thailand, have effectively developed a vibrant bond market and rely less on government financing.
Regulator’s role
He also said the Government bond market should be more liquid without skewed trading in 10-year benchmark G-Secs. At present, the 10-year benchmark witnesses the highest amount of trading with lesser liquidity in other dated securities.
Referring to regulatory facilitation, Gokarn pointed out that various regulators have to work in tandem to develop an effective bond market. The deputy governor, who is in charge of monetary policy in the central bank, said an effective bond market can transmit the monetary policy much faster than the banks.
“One of the concerns that have come up in the recent years is that banks are very slow transmitters. They simply don’t react to policy actions and so policy actions some times don’t translate into market outcome,” said Gokarn.
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