PF, pension funds may be allowed to invest in corporate bonds

While India has a very advanced G-sec market, the corporate bond market is relatively underdeveloped

With banking sector facing asset-liability mismatch in their funding to infrastructure sector, the government may soon relax the norms for pension and provident funds to invest in the corporate bond market to provide long term finance for the core sector.

Economic Affairs Secretary Arvind Mayaram said most countries had developed corporate debt market for funding the infrastructure sector and in India also could replicate it by relaxing the investment norms for pension and provident funds which would provide long-term funds.

“This is one area we are very actively looking at and we would be coming out with some new guidelines in the near future,” Mayaram said at an infrastructure summit on Friday. Later, talking to the reporters, he added, “We are examining what needs to be done to deepen the corporate bond market. Steps are on the anvil. We are looking at them and we will be announcing those which are feasible very quickly.”

He said Exchange Traded Funds (ETFs) could play a very important role in funding infrastructure, but they are yet to take off in a big way. The Secretary added the government was open to discussions if some changes were required in the structure of ETFs.

The corporate debt market in India is not developed fully and the government is looking at ways to attract the companies come up with long-term bond offerings. This would take some pressure off the banks which find their short-term resources limited for meeting the long-term needs of infrastructure sector.

The Secretary said new bank licences would help to some extent by stretching the canvas. He said the finance ministry was in touch with the Reserve Bank for new banking licences.

Mayaram said strengthening of legal framework for regulation of the corporate debt market was required by amending rule and regulations, like SARFAESI and Income Tax Act. He added efforts were being taken to remove legal and regulatory constraints for nascent products such as municipal bonds, credit-default swaps, credit enhancement and securitisation receipts.

"We are aware of this and looking at that to see how we can amend these to enable the corporate market to get its debts," he said.

India needs $1 trillion in the 12th Five Year Plan (2012-17) to develop infrastructure and the government expects half of the amount to come from the private sector. The government expects the private sector to chip in half of this funding requirement for infrastructure sector. Roughly, the private sector is expected to bring debt of $350 billion and equity of $150 billion, he said.

“The private sector lacks that capacity. We will not be able to produce the kind of large companies and more companies who are in position to bid for large projects,” Mayaram said, and added it was important to reach out to foreign companies who are capable of executing large projects.