Channelising long-term pension, insurance monies to even lower grade paper is need of the hour, says SBI Chief Khara

SBI Chairman Dinesh Kumar Khara on Tuesday said that India must look to channelise the long term liabilities (funds) available with pension and insurance sector into capital market to make the debt side of this market more vibrant.

These long term liabilities should be made available to even lower grade paper which will make the debt market even more vibrant and this is need of the hour, Khara said at CII organised Partnership Summit, which is happening virtually for the first time ever.

“If you want to create infrastructure in the country, this money (pension and insurance monies) has to flow into infrastructure, which is what we see around the globe”, Khara said.

He highlighted that currently insurance and pension monies flow only to those debt paper that are rated AA and above.

Khara said that market related debt instruments have not gained much of currency in the country. Going forward, if one were to fund the ₹ 100 lakh crore plus kind of investments for infrastructure, then it is possible only if the country were to open up capital markets and encourage more and more foreign participation, Khara said.

“Lot of steps have been taken in the recent past and in the past couple of years when it came to shoring up the confidence of international investors on the economy. This year we have started seeing foreign participation. More needs to be done to encourage their increased participation”, he said.

Financial reporting

Khara highlighted that financial reporting—which is critical component of shoring up foreign investors confidence—has improved significantly, but there is long way to go.

“Given the crossroads at which this economy stands, we have to significantly accelerate the pace of improvements in financial reporting and corporate governance standards”, he said.

To a question asked by Janmejaya Sinha, Chairman-India, The Boston Consulting Group on whether India needs a Development Finance Institution now, Khara said that even if a DFI comes in, the source of funds for DFI has to be more international in colour than the case in previous avatars, where money was flowing mainly from Government and household savings.

Sanjay Nayar, CEO, KKR India Financial Services Ltd, said that a lot more needs to be done to develop local debt markets. Efforts have to be taken to unlock local sources of long term savings which are today a plenty, but lying with pension, insurance entities and some banks. He also suggested that issuers of all hues — not just AAA— be allowed to access the markets.

He also said that time is ripe for India to introduce concept of “bad bank”. The government should look to privatise governance model of public sector banks and not their government ownership, he added.

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