MUMBAI: Capital markets watchdog Sebi on Wednesday said it will issue a consultation paper on developing a secondary debt market. Considering the prevailing stress in the banking sector, corporates are raising funds from the bond market and hence the markets regulator will soon issue draft guidelines to enhance the market for corporate bonds.
"There's an opportunity and need to deepen the bond market given the crisis in the banking system due to the pile of bad loans, which is feared to cross 12.6 per cent by March," said Ajay Tyagi, Chairman, Sebi. Speaking at an event about developing a robust secondary market, Tyagi said, the final guidelines will be drafted soon, in consultation with all stakeholders including the RBI.
"SEBI is in consultation with the Reserve Bank of India and the government, and will take steps to enhance a secondary market for corporate bonds, so that liquidity improves," he said. The move comes amid liquidity concerns, muted bank credit growth and growing trend of corporate bonds.
It may be noted that the government too has asked SEBI to consider mandating large corporates to meet one-fourth of their financing needs through bond markets. Currently, the domestic corporate bonds market is estimated to be $287 billion, significantly lower than the equity markets comprising about 80 per cent of GDP. According to Tyagi, the volume of private placement of bonds has taken off well in the last few years after SEBI ensured transparency.
"We will continue to work in more transparent ways and make it easier for companies to raise money through this platform. However, liquidity in the secondary market is a big concern, we need to do lot of things to increase liquidity," he added. He also expressed concern over the continued tightening in bond yields since the past six months due to higher interest rates. Meanwhile, Tyagi clarified that the regulator was not against the idea of merger of the bourses.
"More players are required, but if economics determines there should be consolidation, then so be it," he said adding that Sebi was yet to receive proposals in this regard. The remarks come amid reports that NSE and MCX Ltd were in talks for a proposed merger, though both parties declined.
Amid reports of a much anticipated open offer by Life Insurance Corporation (LIC) to acquire shares in IDBI Bank Ltd, Sebi Chairman Ajay Tyagi clarified that the regulator hasn't received any such proposal so far. It may be noted that the state-run insurer, late last month, the insurance regulator Irdai relaxed norms allowing LIC to acquire stake up to 51 per cent in IDBI. However, as per Sebi takeover norms, an acquirer has to make an open offer to shareholders of target company on acquiring shares or voting rights of 25 per cent. Tygai said Sebi will consider LIC's proposal as and when it comes. Meanwhile, Tyagi also confirmed that the regulator has served a second show-cause notice to NSE in its probe into the alleged preferential access given to some high-frequency traders. The probe has delayed the initial public offering of the exchange, and the regulator has returned its settlement plea.