Tyagi moots single platform for Gilts, corporate bonds

Capital markets regulator Sebi Wednesday called for "unification" of the corporate bond market with the more widely-traded government securities market to make it easier for investors to enter and exit the market.

Chairman Ajay Tyagi also said the corporate bond market, where issuances have plateaued in the past three years, can play an important role in pushing economic growth given the handicaps in the banking system.

"There is a need for seamless transmission of information from G-secs to the corporate bond market...there is a need for unification of both," Tyagi told an event organised by the industry lobby Assocham here.

"One of the ways to achieve this can be the unification of G-secs and corporate bond markets, wherein trading, clearing and settlement can take place on one platform backed by an ecosystem that allows seamless transfer of G-secs and corporate bond holdings," Tyagi said.

Welcoming the government moves on providing credit enhancement for corporate bonds, he said generally the lower- rated companies, especially from the infrastructure sector, get impacted as investors prefer only higher-rated paper.

Tyagi also called for bringing down the bond issuance cost which is very high now and pointed out that creating the dividend redemption reserve alone results in up to 50 percent of the costs. Another way to lower the cost is to shifting the payments to unified payments interface.

Calling for innovations, he said there is also a need for different types of corporate bond offerings, as at present issuers are only offering "vanilla" paper.

Reeling out data, Tyagi said the market has gained "significant traction" over the past years, as funds raised from the market touched Rs 6.5 lakh crore or 16.3 percent of GDP in FY19 from Rs 3.7 lakh crore or 13 percent of GDP in FY13.

However, over the past three of the six years, there has been a plateauing of issues at Rs 6.4 lakh crore per year, he said.

On the issue of liquidity, he said corporate bonds are not as standardised as equities and the nuances would impede liquidity.

Tyagi said apart from unification of G-secs and corporate bonds, there is also a need to increase retail participation in G-secs market. There is also a need to have a strong yield curve for G-secs as this is the base on which the spread of a corporate paper is determined, he said.

To a question on a social stock exchange, which was announced in the budget, Tyagi said Sebi will be setting up a working group on the same.

He also said the regulator is fully supporting the government move to have a debt exchange-traded fund of central public sector enterprises.