The huge supply of government securities (G-secs) is a major hindrance for the growth of the corporate bond market, according to Reserve Bank of India Deputy Governor R Gandhi.
Government borrowing through G-secs is seen surging year-on-year, he said at a debt market summit organised by Care Ratings.
In comparison with the government bond market, the corporate bond market is tiny, said the Deputy Governor.
As on March 2013, debt as a percentage of GDP in the case of Government bonds stood at 49.1 per cent while it was just 5.4 per cent for corporate bonds.
“Progress in the growth of the corporate debt segment has not been too satisfactory and there is evidently a pressing requirement to revisit this subject… We are not realising that the paucity in long-term resources can severely come in the way of investment,” he said.
Though commercial banks do cater to the investment needs of the corporate and infrastructure sectors, they are reaching their own limitations, Gandhi said.
“… Intuitively we can see that the capital market has to become progressively more relevant in this process of garnering long-term funds,” he added.
The RBI expects the corporate debt market to get an impetus as banks issue long-term bonds to support infrastructure and housing projects.
Further, to meet capital requirements under the Basel III (regulatory) Framework, banks will tap the market with their Additional Tier 1 and Tier 2 bonds.
“These developments can usher in emergence of a quasi government yield curve, which can serve as benchmark for corporate issuances,” Gandhi said.
He pointed out that when the Basel 3 framework relating to large (loan) exposure norms takes effect, and as banks reach their limits in supporting direct lending to the corporate sector, corporates will be nudged to resort to market borrowing.
On top of this, the expected robust economic growth will also compel the corporate sector to approach the market.