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Assocham-Crisil suggests 3 pronged strategy to deepen bond market in India

The study highlighted the urgent need to promote vigorous investor education, awareness initiatives

ANI  |  New Delhi [India] 

Assocham-Crisil suggests 3 pronged strategy to deepen bond market in India

A three-pronged approach based on facilitating larger institutional investment in corporate bonds together with weaning companies away from loans and ensuring facilitative policies and infrastructure from perspective of both issuers and investors is imperative for comprehensive development of in India, suggested a recent joint study.

"Setting up of a dedicated team of experts or department within the Ministry of Finance to facilitate development of the corporate market and following up on relevant implementation initiatives will help," suggested the study titled, 'Giving debt its due,' jointly conducted by and thereby highlighting the need to put in facilitative policies and requisite infrastructure.

As part of facilitating larger institutional investment in corporate bonds - mutual funds, insurance companies and pension funds have best chance of channeling financial savings. While financing is by far the most preferred mode of funding, as such more companies should come out with bonds.

"The Indian market has not grown the way it should have due to structural constraints dominance of banks in lending, risk appetite of investors limited to higher ratings, regulatory arbitrage between loans and bonds and prescriptive regulatory limits on investments," noted the study.

Factors such as dominance of banks in lending, risk appetite of investors limited to higher ratings, regulatory arbitrage between loans and bonds, and prescriptive regulatory limits on investments are hindering the growth of corporate market in

"Also, retail (individuals) participation in debt is almost non-existent, even though the Indian investor psyche is skewed towards fixed income instruments with as much as 47 percent of the annual household financial savings flowing into fixed deposits," said the report.

Highlighting the importance of a thriving corporate market, it said, "It would be a win-win for both industry participants and investors - issuers will benefit from being able to generate stable funding at low costs, while investors can get secure and predictable cash flows with higher returns compared with plain-vanilla fixed deposits."

The report further stated that in the long run, this also offers economic benefits to the country as a whole, and is growth-conducive as it becomes especially important for funding the government's ambitious infrastructure agenda, which will require an estimated Rs. 43 trillion in the five fiscals to 2020.

Considering the major role of individual investors, the study highlighted the urgent need to promote vigorous investor education and awareness initiatives as part of encouraging measures undertaken by regulators.

First Published: Mon, March 20 2017. 20:05 IST
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