The government will start a “significant” fund to invest in stressed assets, Jayant Sinha, Minister of State for Finance, said on the sidelines of a conference here. Though the Centre has not decided on the size of this fund, Sinha said there are several players interested in investing in the equity of such a fund, including the National Investment and Infrastructure Fund, special situation funds and smaller stressed asset funds.
Sinha was the keynote speaker at a conference organised by credit rating agency Crisil on expanding the corporate bond market. “We’re working on putting together a stressed asset fund with a committee, since we need an efficient resolution and recovery process to decide how much haircut banks can take,” Sinha said.
Regarding the possibility of setting up a bond guarantee fund, Sinha said the proposal is under consideration but the government is considering all possible policies before it takes a decision.
Crisil estimates that India will need ₹43 lakh crore for infrastructure build-out over five fiscals to 2020 and public sector banks will need to raise ₹1.7 lakh crore of Tier 1 capital by March 2019 to conform to Basel III regulations. The corporate bond market needs to be developed in order to meet these extensive financing needs, Pawan Agrawal, Chief Analytical Officer, Crisil Ratings, said.
Need for innovation “For growth-finance to be structurally derisked, there is a need for new innovative structures and vehicles.
“We simply need more issuers beyond the financial sector, which means mandating large companies to raise a portion of their funding requirements through bonds and commercial paper,” he said.
RK Agarwal, Whole-time member at capital market regulator SEBI and a panelist at the conference, said the regulator is working towards bringing more institutional investors into the corporate bonds market.
Electronic bidding “In the last one year, we’ve improved the communication between credit rating agencies and debenture trustees. We’re tightening regulations and introducing new norms to take care of enhanced responsibility and transparency among credit rating agencies.”
Regarding improving liquidity in the bond markets, Agarwal said the market is still mostly telephonic. “In 2013, we introduced the debt segments on exchanges but it hasn’t taken off. We’re now asking the RBI to make at least part of the borrowing through the exchange platform. We’re also going to introduce an electronic bidding platform for issuances over ₹500 crore and we’re asking exchanges to start focusing more on bonds.” Crisil also voiced the need to allow repos in corporate bonds because currently, trading in such instruments is scarce as investors prefer to hold the assets to maturity.
In response, Chandan Sinha, Executive Director, RBI, said, “We are already talking of moving the corporates towards bond-financing. There would be a compulsory recourse for part-financing of their projects.”