To meet infrastructure funding there is an urgent need to develop the corporate bond market, said Dr Subir Gokarn, Deputy Governor, Reserve Bank of India. He was addressing the175th annual general meeting of the Madras Chamber of Commerce.
So far the responsibility for financing new investments has fallen predominantly on banks.
For reasons relating to asset-liability management and sector exposure limits, the capacity of banks to finance this sector is limited, he said.
Several committees
For several years, one committee after another has been making recommendations for actions to develop this market. These cut across regulatory domains and this is perhaps one reason why, despite several steps being taken, a critical threshold that will make the market viable was not reached, said the Deputy Governor.
However, Mr Gokarn said that in recent months all the regulators and the Government have been focussing on addressing the remaining binding constraints.
The 2011-12 Union Budget took one step in exempting bonds issued by Infrastructure Development Funds from withholding tax. It would be reasonable to extend this facility to bonds issued by infrastructure companies, he said.
Stamp duties
Another issue, namely, the inter-State differentials in stamp duties, is being addressed by attempting a harmonisation of rates across States, he said.
Credit enhancement
To make large number of bonds attractive to a potentially large domestic investor base in the form of insurance and pension funds, mechanisms for credit enhancement which will allow bonds to meet minimum rating requirements for a price are being explored.
The more efficiently and reliably this service is delivered, the larger the pool of investment will be for these very large institutions.
It is estimated that over the next five years Rs 40-lakh crore ($1 trillion) is proposed to be invested.