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The successful implementation of Insolvency and Bankruptcy Code (IBC) is expected to aid in the development of a robust corporate debt market over next three to five years, SEBI Chairman Ajay Tyagi said on Monday.
The fact that IBC gives higher priority to both unsecured and secured debt over the government taxes in the waterfall mechanism should lend comfort and interest to the bondholders, Tyagi told reporters on the sidelines of a conference on insolvency, organised by Insolvency and Bankruptcy Board of India.
“In normal times when bond markets are doing well, there is empirical evidence to show in BRICS countries that when bankruptcy law is successful, then the bond markets will improve,” he said when asked where does this optimism come from on the positive impact on bond markets from IBC implementation.
At the same time, Tyagi also made it clear that successful IBC implementation alone cannot be the reason behind bond market development.
“Bond market (in India) not doing well could be for ten other reasons. There are so many things happening like DHFL, IL&FS and people are having trust issues and credit rating issues,” he said.
‘Trust slightly dented but..’
Asked if investor confidence has been shaken post the Karvy episode, Tyagi said that SEBI had been swift in taking remedial regulatory actions. “Karvy was in our domain and we did act very promptly. We are trying to work on the rating agencies and bond market development,” he said. He also indicated that SEBI may take more action on Karvy.
SEBI chief said that investor trust has been affected to some extent, but quickly added that it does not mean everything is wrong (in the securities market)
Tyagi also said that he was quite hopeful of the new FRDI Bill — likely to be introduced in the Budget session of Parliament — providing comprehensive insolvency framework for resolution of financial service providers. Even in that Bill, initiation of insolvency proceedings on financial service providers will have to be done by the regulator concerned, Tyagi told BusinessLine .
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