Mumbai: Finance minister Nirmala Sitharaman on Friday said the government will work with the Reserve bank of India and Securities and Exchange board of India to deepen the corporate debt market with a special focus on infrastructure. Presenting her maiden budget, Sitharaman announced that a Credit Guarantee Enhancement Corporation will be set up in the current fiscal year as part of the measures to deepen the bond market.
Currently, the government runs a Credit Guarantee Fund Scheme for Micro and Small Enterprises to make available collateral free credit to these small firms. A trust under the scheme was set up in association with the Small Industries Development Bank of India (Sidbi) and guarantees loans up to ₹1 crore. Guarantees offered by the trust allow small and medium enterprises to borrow at cheaper rates.
Further, Sitharaman said that measures will be taken to deepen corporate tri-party repo market in corporate debt securities. The government will work with the RBI and Sebi to enable stock exchanges to allow AA-rated bonds as collateral, she said.
The tri-partite repo market provides opportunity to borrow against securities and provides short-term liquidity to participants. Typically, a repo transaction happens between two entities, wherein the borrower raises funds by selling securities with the promise to repurchase the securities on a specified date at a mutually agreed price. The introduction of a tri-party repo was part of the recommendations of the H.R. Khan committee’s report on the development of the corporate bond market.
Last year, the National Stock Exchange and the BSE had launched an electronic platform for repos. However the securities allowed include only AAA category bonds, A+ rated commercial papers and certificates of deposits.
The Reserve Bank of India (RBI) had introduced repos in corporate bonds in 2010, but the response had been lukewarm because of non-availability of guaranteed settlement and an electronic dealing platform.