Corporate bond market can reach 15% of GDP in 12th Plan: CII

Mumbai: Prudent policy and regulatory reforms can help the country’s corporate bond market to reach a level of 15 percent of the gross domestic product (GDP) in the current Five Year plan (2012-17), a CII survey said.

“Corporate bond market, which stands below 5 percent of GDP at present, has the potential to reach to a level of 15 percent of GDP during the 12th Five Year plan on back of policy and regulatory reforms,” a survey conducted by the industry body on ‘Reforming Corporate Bond Market (CBM)’ said.

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The participants of the survey included bond issuers, investors, market makers, credit rating agencies and technical experts.

“A robust corporate bond market is imperative to meet the funding needs of the emerging Indian economy. Concerted policy and regulatory reforms in CBM holds the key for the privatesector to meet its target share of 47 percent in the total infrastructure investment during the 12th Plan,” CII Director General Chandrajit Banerjee said.

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The survey said 29 percent of the respondents estimated the actual potential of corporate bond market to be 10-12.5 percent of GDP while 14 percent of them believe the level tobe at 7.5 -10 percent.

India is heavily reliant on budgetary support and bank credit for funding its infrastructure needs, while in many countries across the world, long-term debt in form of corporate/sovereign or municipal bonds forms a major share of infrastructure finance, it said.

“Limitations or inflexibility of the banking sector to meet increasing capital requirements of infrastructure companies would be the key driver for development of corporate bond market,” the survey said.

Highlighting the impediments of corporate bond market, the survey said, “Lack of conducive regulatory framework, in-existence of incentives and support mechanisms for willing market makers and inadequate credit enhancement facility are the biggest challenges in deepening of the market.”

Conducive regulatory framework and incentivising willing market makers can have positive impact on the development of the market, it added.

“Increased availability of credit enhancements by different institutions including banks would allow less than investment grade bonds to be eligible for investment by insurance companies, Provident Fund and Pension funds,” the survey said.

The participants believe that top priority needs to be given in formulating strong bankruptcy laws by amendments to Sarfaesi Act to enable recovery of bond holder dues bydebenture trustees through Debt Recovery Tribunals.

Standardising documentation and mandating use of unified market conventions for standardisation would also help in increasing the recovery, the survey said.

PTI