Centre Weighs 30yr Bond To Deepen Mart

The government is considering introduction of a 30-year bond, according to the secretary, economic affairs, in the finance ministry.

At the second India-European Union Business summit today, C M Vasudev said the measure will deepen the market for long term debt instruments which insurance and pension fund companies need.

He said such bonds will have a floating rate, which means the interest rate on them will be variable.

Vasudev added that the Reserve Bank of India and the ministry have to tie up a few issues before the bond can be introduced in the market.

The government has recently introduced a five-year floating rate bond. Vasudev said the government has more optimistic projections about the economy than expressed by rating agencies like Standard and Poor's and Fitch. While the former has put the local currency rating on a watch, Fitch downgraded the foreign currency rating for India yesterday.

The economic affairs secretary stressed the need to have a strong and vibrant secondary debt market. He said, while the share of banks in household savings in the country has gone up from 26 per cent to around 44 per cent, the share of provident and pension fund has remained static at around 18 per cent. The share of NBFCs has come down to 3 from 14 per cent.

Vasudev said the new players in the insurance sector can take advantage of the glaring rigidity by the state-owned insurance firms. He said there is a need to instill greater competition in the financial market by the government and industry.

Ashwin Parekh of Arthur Andersen said there are four key areas where India has untapped potential for new players. These are insurance and pension management, back office services, asset management, and private banking.