Banks can undertake 'proprietary transactions' in bond mkt: RBI

India has a very advanced G-sec market, but its corporate bond market is relatively underdeveloped

The RBI today said banks can become members of stock exchanges to undertake "proprietary transactions" in the corporate bond market.

"In order to further enhance transparency, it has been decided to permit Scheduled Commercial Banks (SCBs) to become members of SEBI approved stock exchanges for the purpose of undertaking proprietary transactions in the corporate bond market," the RBI said.

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

Various stakeholders, including government, RBI, SEBI and IRDA in the recent times have made co-ordinated efforts to help development of a more vibrant corporate bond market.

RBI Deputy Governor H R Khan recently said that while the measures taken so far have generated the momentum needed to develop the corporate bond market, the indicators are suggesting that the market is yet to develop to its potential in relation to needs of India's macroeconomy.

The size of the Indian corporate bond market at 11.8% of GDP is lower than the average for Emerging East Asia and for Japan at 17.2 and 19.8%, respectively.

Some of the initiatives taken by the RBI to develop the market include measures to impart liquidity by permitting repo transactions in corporate bonds and increase transparency by capturing information related to the trading, have been taken.

A well-developed corporate bond market provides additional avenues to corporates for raising funds in a cost effective manner and reduces reliance of corporates on bank finance.

Total issuance of corporate bond market increased from Rs 1,74,781 crore in 2008-09 to Rs 2,96,894 crore in 2011-12. Similarly, trade volume has increased from Rs 1,48,166 crore in 2008-09 to Rs 5,93,783 crore in 2011-12.