On Investor
Participation, Deputy Governor R Gandhi Says There Was A Need To Reassess The Role Of Pension Funds And Insurance Firms In Corp Bond Market
Mumbai : The rise in government borrowings through bonds is impeding the growth of the corporate debt market in the country, Reserve Bank of India Deputy Governor R Gandhi said.
“The huge supply of government paper in the country is one of the major impediments to the growth of corporate bond market,” Gandhi said, addressing a corporate debt event organised by Care Ratings. Presenting data which showed the inability of the corporate debt market to grow, Gandhi said every year, the government borrowing only grows “unabated”.
“If we compare with government bond market, the corporate bond market is dwarfed,” he said, adding that as a percentage of GDP, the outstanding government bonds were at 49.1 per cent while corporate bonds were at 5.4 per cent, in 2013. However, he welcomed the fiscal consolidation plan of the government as a step in right direction which will aid the deepening of the corporate debt market.
“We have seen that the government is progressively trying to reign in the deficit at absolute level which will put less pressure on the market,” he said.
These comments have come at a time when there is growing speculation that RBI’s role in public debt management will be given to a professional agency.
Gandhi also said the RBI’s move to gradually reduce the Statutory Liquidity Ratio (SLR), or the amount of government bond holdings for banks, will also be beneficial to the corporate debt market.
With the banking system plagued with rising NPAs (non-performing assets), shifting to the corporate bond market for funds is very desirable, Gandhi said.
He said borrowers take undue advantage of the 90-day window in NPA recognition and pay up on the 89th day, but same is not possible in case of corporate bonds where they have to pay up on a given day.
Similarly, pricing of funds is also very transparent in a corporate bond market unlike the bank loans.
On investor participation, Gandhi said, “The role of institutional investors
such as pension funds, provident funds and insurance companies must be reassessed. They do need to take some initiative and be aggressive in actively managing their portfolios.
Their investment
horizons should not be confined to AA and above instruments only,” he said.
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Govt To Borrow Rs 3.6L Cr In First Half Of 2015-16
New Delhi : The Union government will borrow Rs 3.6 lakh crore from markets in the first half of the next financial year, which is over 50 per cent of the annual target of Rs 6 lakh crore.
“We will issue long-term bonds of 40 years in early next financial year. It will help us in the long run and will provide stability in the system,” Finance
Secretary Rajiv Mehrishi said. The government borrows money from the markets through T-bills and other instruments to fund its fiscal deficit. Giving details of borrowing programme for 2015-16, he said the central government would be borrowing about Rs 17,000-18,000 crore through bonds every week.
The net borrowing in the first half of the current fiscal would, however, be Rs 2.25 lakh crore, Mehrishi said, adding “government will issue concept paper on switching (of government bonds) in 15 days.”
In the fiscal year ending March, the fiscal deficit has been estimated at 4.1%. In 2015-16, the deficit will be pruned to 3.9 per cent.
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