Budget 2016: Good times ahead for bond markets?

By Sawant Singh and Aditya Bhargava, Phoenix Legal
0
1816
LinkedIn
Facebook
Twitter
Whatsapp
Telegram
Copy link

While the Indian corporate bond market has become more active in the private placement segment in the past few years, the market’s overall development has been ad hoc. This situation seems set for a much needed change, with the Reserve Bank of India (RBI) under its current governor, Raghuram Rajan, actively promoting the migration of long-term infrastructure debt and structured debt from the loan markets to the bond market.

Sawant Singh
Sawant Singh

The reason for this is two-fold: (1) the significant asset-liability mismatch makes bank funding of infrastructure projects unviable for most banks; (2) bond financing deepens debt markets by enabling capital markets participants (such as pension funds and insurance companies) to lend directly to borrowers. Such participants are generally considered to be better placed to evaluate and to assume longer term risk. Additionally, bonds have the perceived advantage of being more liquid than loans, in that trading of bonds is generally less complicated than syndication or down-selling of loans.

The growth of the Indian corporate bond market has coincided with the downturn in credit growth (i.e. bank lending), and bond-based financing as well as commercial paper-based financing through institutional investors has replaced bank lending to a substantial extent. While the RBI and the Securities and Exchange Board of India (SEBI) have introduced measures such as enabling infrastructure debt funds and rationalizing the entry route for foreign portfolio investors to invest in debt securities, in the absence of government-backed measures so far, these regulatory steps haven’t been as successful as intended. The government’s 2016-17 budget seeks to remedy this by recognizing the need for deepening the bond market and by introducing specific measures for this purpose.

You must be a subscribersubscribersubscribersubscriber to read this content, please subscribesubscribesubscribesubscribe today.

For group subscribers, please click here to access.
Interested in group subscription? Please contact us.

你需要登录去解锁本文内容。欢迎注册账号。如果想阅读月刊所有文章,欢迎成为我们的订阅会员成为我们的订阅会员

已有集团订阅,可点击此处继续浏览。
如对集团订阅感兴趣,请联络我们

Sawant Singh is a partner and Aditya Bhargava is a principal associate at the Mumbai office of Phoenix Legal.

Phoenix_Legal_-_logo

New Delhi

Second Floor,

254, Okhla Industrial Estate

Phase III

New Delhi – 110 020, India

Tel +91 11 4983 0000

Fax: +91 11 4983 0099

Email: delhi@phoenixlegal.in

Mumbai

Vaswani Mansion, 3rd Floor

120 Dinshaw Vachha Road

Churchgate

Mumbai – 400 020, India

Tel: +91 22 4340 8500

Fax: +91 22 4340 8501

Email: mumbai@phoenixlegal.in

LinkedIn
Facebook
Twitter
Whatsapp
Telegram
Copy link