Fin sector must reduce reliance on banking system for fundraise: Sebi chief

t would be a challenging task to achieve the government''s target of having Rs 100 trillion investments in infrastructure by 2024-25 unless the bond market is adequately developed, Tyagi added

Sebi Chairman Ajay Tyagi on Wednesday said there is an urgent need for diversification in the country's financial sector in terms of fundraising, through a shift to capital markets.

"The financial sector in India is currently dominated by bank lending. This needs urgent diversification by facilitating fundraising through capital markets, especially considering the well-known problems with the banking sector," Tyagi said at an event organised by industry lobby CII.

The markets regulator also warned that unless the bond markets are developed adequately, the government's target of having Rs 100 lakh crore of investments into the infrastructure sector by 2024-25 may not materialise.

While India has active equity markets, it has been struggling for many years with the corporate bond market development.

It would be a challenging task to achieve the government's target of having Rs 100 lakh crore investments in infrastructure by 2024-25 unless the bond market is adequately developed, Tyagi added.

Development of the corporate bond market needs "deeper structural and regulatory changes", he said, adding that this will require coordination among the government and financial sector regulators.

He added that the Securities and Exchange Board of India (Sebi) has initiated a slew of measures to develop the corporate bond market.

The regulatory body's chief said India has been averaging about Rs 9 lakh crore of fundraising from the bond equity and debt markets combined every year and needs to ramp up considering the need of a developing country.

For the April-September period this year, there has been a 25 per cent jump in the debt raising from the corporate bonds side at Rs 3.8 lakh crore.

Tyagi said there are primary market issuances of over Rs 6 lakh crore a year and the same have grown significantly in the last 3-4 years, but liquidity in the secondary market is an issue.

Enlisting the steps taken by Sebi, Tyagi said the capital markets regulator has asked mutual funds to carry out certain percentage of trades through the RFQ (request for quotation) platform. He added that its pensions counterpart PFRDA and insurance counterpart IRDAI have also agreed in-principle to ask entities regulated by them to do so.

The platform will improve transparency and bond pricing will come down, he said, specifying that the issues on liquidity are faced particularly in respect of bonds rated below AAA.

At a recent board meet, Sebi has also approved a limited purpose clearing corporation for corporate bond repos to get more liquidity, he said.

Sebi has also taken up the issue of creating a 'backstop facility' with the government which will provide comfort to bondholders, but the issues surrounding moral hazard need to be taken care of in the same.