Mumbai: Although improved credit ratings and documentation have braced the corporate bond market in India, it remains a weak instrument compared with government bonds, says an Asian Development Bank (ADB) report, which for the first time included India in its watch list.
The Indian bond market is not easily encashable, and regulatory tasks are split, Jong-Wha Lee, the bank’s head of regional economic integration centre, told a conference to launch its latest Asian Bond Monitor.
Funding needs: A Jindal Stainless plant in Hisar. The country needs $500 billion till 2012 for its infrastructure, most of which should come from corporate bonds, according to analysts. (Photo: Rajeev Dabral/ Mint)
The report, published twice a year, reviews East Asian local currency bond markets, and tracks China, Japan, South Korea and the 10 members of the Association of Southeast Asian Nations.
To develop the bond market in India, the bank suggested easing restrictions that arrest growth of derivatives and swap markets, and relaxing exchange controls to smoothen foreign investment.
“Streamlining regulatory and supervisory structure could contribute to substantial efficiencies, spurring innovation, economies of scale, liquidity and competition,” Lee said.
Speaking at the conference, R.H. Patil, chairman of Clearing Corp. of India Ltd, said the capital market regulator Securities and Exchange Board of India, or Sebi, has been slow to promote the corporate bond market.
“I would not say the corporate bond market is not moving at all, but it has been moving slowly. Sebi somehow has not been as active as the Reserve Bank of India,” said Patil, who is also chief executive of the National Stock Exchange of India Ltd.
Problems such as private placements, stamp duty rationalization, tax framework, lack of a central counterparty and price discovery mechanisms of corporate bonds persist, Patil said.
Participants discussing challenges for the Indian bond market agreed that the domestic market is plagued by high costs and bottlenecks.
Strict government regulations, lack of retail participation, and the practice of marking-to-market corporate bond losses are restricting companies from issuing bonds in India.
While such issues went up 21% in a year, the number of issuers has gone down 77%, said Simarjeet Baweja, head of Reuters Academy South Asia.
“India’s equity and government bond market infrastructure is robust. Why the same cannot be extended to the corporate bond market is beyond my understanding,” said Stephen Wells, senior research fellow at ICMA Centre at the Reading University in the UK.
Despite the problems, participants predicted the corporate bond market would see a surge within a year.
India needs $500 billion (Rs20 trillion) till 2012 to fund its infrastructure, and most of it should come from corporate bonds, they said. Currently, the corporate bond market is about 3% of the country’s gross domestic product.
“The repurchase ability in corporate bonds is waiting to happen anytime soon. Once that is achieved, the corporate bond market will get the required boost,” said Pranab Choudhury, chief executive officer of Icra Group.