Need to grow fixed income market

Reserve Bank of India Deputy Governor BP Kanungo said there is a need to grow the fixed income market in the country and stressed that market participants, along with regulators, must play an active role in this endeavour.

“The role of financial sector in a growing economy cannot be overemphasised. As the most important segment, the fixed income market in India has to grow to cater to the investment needs of an economy that aspires to become a $5-trillion economy in the near future,” Kanungo said at the recently held 20th FIMMDA-PDAI Annual Conference in Moscow.

Fixed income markets meet the fund requirements of sovereign and sub-sovereign bodies, and also to a large extent, cater to the external fund requirements of financial and non-financial companies.

Noting that the Indian financial sector has largely been a bank-based one, Kanungo said developing a robust fixed income market will bring in market discipline, augment bank finance, and free up bank finance for users that cannot access the market directly.

Listing out measures that can be undertaken, he said participants such as banks and insurance companies must go “beyond the comfort of 6-9-3 banking in search of unexploited market and unharvested returns”.

He also said that greater access to foreign investors to the rupee debt market – cash as well as derivative – will gradually be considered.

The RBI is also examining current market timings for trading, clearing and settlement cycles of financial markets that it regulates to improve market efficiency.

Govt securities

“We would also work towards enhancing the overall liquidity in government securities market in terms of availability of two-way quotes in less liquid maturities through targeted market-making schemes.

“Further, measures towards activation of a securities lending and borrowing programme, and inter-operability of depositories for smooth transfer of ownership in securities will receive our attention,” he said, adding that the RBI is also engaging the government for active consolidation of government debt through frequent buyback and switch operations.