The Securities and Exchange Board of India (Sebi) was actively considering allowing repurchase agreements (repo) in corporate bonds to increase liquidity and volumes in the market, Prashant Saran, whole-time member of Sebi, said.
Currently, repo facility is allowed only in government bonds. The capital market regulator was considering norms for credit derivatives, Saran said, but did not mention the likely time frame for both developments.
He also declined comment on the types of corporate bonds that might become eligible for repo. Saran was talking to reporters on the sidelines of a seminar organised by Indian Banks’ Association and Federation of Indian Chambers of Commerce and Industry.
On August 25, Finance Minister Pranab Mukherjee had said the government would “soon” permit repo in corporate bonds. The government’s economic survey, released in early July, said it sought to introduce repos and derivatives in corporate debt to help improve investment in infrastructure.
On whether the limit on banks’ capital market exposure would be raised, Saran said, “Most of our banks are near that mark already? Not many. So, then will raising the limit help?” According to Reserve Bank of India (RBI) guidelines, a bank’s aggregate capital market exposure is capped at 40 per cent of its net worth.
To calculate banks’ capital market exposures, both direct and indirect exposures are taken into consideration.
The market regulator favoured curtailing of transaction costs on all capital market instruments, Saran said.
“We are taking all steps to bring cost of transaction down (for all capital market instruments),” he said.
Recently, Sebi reduced the transaction costs for mutual fund investors. Since August 1, it has barred fund houses from charging entry load— an upfront fee they paid directly to distributors.
It has also directed mutual funds to adopt a uniform exit fee policy without discrimination between retail and institutional investors.
