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A taskforce set up by the Reserve Bank of India (RBI) to look into ways to develop the secondary market for corporate loans has suggested a slew of measures, including participation by non-banks such as mutual funds, insurers, and pension funds.
In its report submitted to RBI Governor Shaktikanta Das, the committee has recommended the setting up a self-regulatory body of participants to finalise details for the secondary market for corporate loans, including the standardisation of documents.
Significantly, it has also called for amending regulations of SEBI, IRDA and PFRDA to enable participation of non-banking entities such as mutual funds, insurance companies, and pension funds.
Noting that banks and NBFCs are currently the only participants in the primary and secondary loan markets, the taskforce said it is essential to widen the spectrum of participants to boost the secondary market.
“Internationally, secondary loan market is utilised by diverse and vast number of participants, including investment banks, commercial banks, hedge funds, pension funds, mutual funds, insurance companies, private equity funds, and specialist loan brokers,” it said in its report.
It has also called for setting up a Central Loan Contract Registry, as well as an online loan sales platform to conduct auctions and sale of such loans. While securitisation is currently permitted only for a pool of homogenous assets, it has suggested that single loan securitisation can also be considered to incentivise investors to acquire loans through the secondary market mechanism.
The six-member taskforce, headed by Canara Bank Chairman TN Manoharan, also recommended amending the provisions for securitisation and assignment of loans, asset reconstruction, foreign portfolio investment, and external commercial borrowings.
The RBI has sought public comments on the report by September 30.
The taskforce was set up in May this year as the secondary loan market in India is largely restricted to sale to Asset Reconstruction Companies and ad-hoc sale to other lenders, including banks, and no formalised mechanism has been developed to deepen the market.
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