SME Times News Bureau | 18 Jul, 2018
A
developed corporate bond market is the need of the hour for India as an
eight per cent economic growth cannot be achieved without a robust
corporate capex cycle, more so as sole reliance on bank loans is not
warranted, particularly when bank lending has been squeezed, noted a
recent ASSOCHAM-Ashvin Parekh Advisory Services LLP (APAS) joint study.
"Given
that PSBs (public sector banks) continue to face profitability and
capital related challenges in the near to medium-term, overall banking
sector credit growth is expected to remain subdued, thus vibrancy in the
debt markets is critical to ensure a steady supply of credit to the
various sectors of the economy," said an ASSOCHAM-APAS joint study
titled, ‘Essentials of investing in corporate bonds.’
On
the policy side, the study noted that bank lending rates are
inefficient in passing through changes in the interest rates by the
central bank. "Further reforms from the central bank are required if
more firms are to gain access to the bond market."
There is a dire need for a more efficient credit market to pass through shifts in monetary policy, it said.
The
study also impressed upon the need to encourage investors to invest in
corporate bond market as it plays an important role in supporting
private sector growth through efficient allocation of capital,
favourable funding terms, flexible term structures, financing at lower
cost and a scalable source of financing.
It
also said that a more developed bond market might allow more firms
access to cheaper or more efficient debt capital, through a higher
risk-taking culture among investors.
The
study further noted that developed bond markets would create a new
asset class in India that attracts foreign capital. “It would be an
efficient allocator of capital and bring more firms into the market.”
The report stated that a vibrant corporate bond market will ensure a win-win situation for all.
Ability of companies to access the market is one of the key challenges being faced in developing corporate bond market in India.
Besides,
perceived risks of the market framework is another challenge in this
regard. "The various risks are interest rate, reinvestment, inflation,
credit/default, rating downgrades and liquidity."
Determining
the relative cost and return of participating in the market and ability
to effectively match supply and demand are other challenges in
developing bond market.
The
study also highlighted that the Securities and Exchange Board of India
(SEBI) and Reserve Bank of India (RBI) have taken various initiatives to
develop the market for corporate bonds in last few years.
The
study further said that all the measures and required regulations
should be in place and regulatory authority should focus on minimizing
information asymmetry to the extent possible so that price discovery
process accelerates.
