Capital Markets regulator SEBI is in talks with the Central government on setting up of a Repo Clearing Corporation as part of efforts to develop a vibrant corporate bond market in the country, G Mahalingam, Whole-Time Member, has said.

Talks on with AMCs

Addressing an e-conclave on ‘Roadmap for economic Rebound’ , organised by the industry body Assocham, Mahalingam said SEBI recognises that Repo market is one of the important pillars for having a vibrant corporate bond market. He highlighted that SEBI has been in talks with various asset management companies who are willing to bring the initial funding for Repo Clearing Corporation.

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“Once you have a good Repo Clearing Corporation, the repo market will gain lot of traction as credit risk vanishes out of the horizon and there will be a central counter party settlement,” he said. “SEBI is also in active discussion with the government on the budget announcement of introducing a new backstop facility for government purchase of corporate bonds that may fail,” he added.

Behind US, Korea, Brazil

Mahalingam noted that corporate bond outstanding in India was ₹36-lakh crore, which was about 18 per cent of the country’s GDP. “While this 18 per cent looks healthy, India is actually lagging far behind the US which has ratio of 124 per cent or South Korea where it is far excess of 50 per cent or Brazil where it it is close to 70 per cent,” he added. The development of our corporate bond market is therefore critical and has to play an important role for the rebound of the economy in a big way, he said.

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Mahalingam highlighted that there is a section of people who contend that development financial institutions (DFIs) are bound to come in a big way to help in economic recovery. “I am not sure if DFIs will come back but what needs to be developed in the country is the corporate bond market. We have been talking for some time on this. But I see flurry of activity in the last nine months where government has been playing a very proactive role with RBI and SEBI taking a good number of measures,” he said.

He stressed the need for both insurance companies and provident funds have to be a little forthcoming when it came to investing in corporate bonds. Most insurers are not prone to taking extra risk although there has been regulatory relaxations. “Insurance companies are well positioned to take risk. But they generally stick to AAA bonds and don’t go below that,” Mahalingam noted.

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