Mumbai, December 14, 2017

The markets watchdog Sebi today said it is still considering to make defaulting corporates to disclose the negative development to the regulator, markets and exchanges mandatory.

"We did give two months to everyone to adjust. But banks, we were told, needed some more time to adjust. So we deferred it. We still are considering it as to how to put it," Sebi chairman Ajay Tyagi said.

He was responding to a question from the audience at a corporate bond market summit here this evening.

It can be noted that Sebi had withdrawn a circular late September within a day of its issuance that mandated corporates that defaulted on loan repayments or bond payments to immediately report to the regulator and the exchanges.

Sebi had not offered reason for the abrupt withdrawal of the circular.

At a function here early last month, Tyagi had said the decision was made as banks had asked for more time as the Indian credit market was different from its Western counterparts where such a disclosure is mandatory.

SBI chairman Rajnish Kumar had clarified a day later that it would unfair if a short term credit of say a working capital loan was defaulted and if it were to be disclosed as a loan default. This would make banking a difficult job and running businesses more and more difficult.

Calling for a robust bond market, which is worth around Rs 20 trillion now in outstanding issuances, Tyagi said sustainable infrastructure funding can happen only through debt market.

"A vibrant bond market is extremely essential for achieving the goal of higher economic growth," he said.

Noting that the debt market has been growing at a healthy pace, he said, in FY17 Rs 6.7 trillion was raised through corporate bonds, a growth of 28 per cent.

"As per our analysis, it marginally surpassed bank credit disbursement during the same year," he said, adding so far this year a little over Rs 4 trillion has been raised through corporate bonds.

In the secondary market also the trading and reporting of corporate bonds have more than doubled in the last five years, he added.

The bond trading has increased from Rs 6 trillion in FY12 to Rs 15 trillion in FY17 and this fiscal till November trading in corporate bonds has touched Rs 12 trillion crore, up from Rs 9 trillion during the year-ago period.

On the supply side of corporate bonds, he said a majority of issuances in the primary market come from AAA- issuers. "But we need to enable issuers going down the credit curve to access bond market," he added.

On the Insolvency and Bankruptcy Code, Tyagi said its implementation will provide additional confidence to investors as it will give greater predictability of recovery.

Admitting that interest rate derivatives market is at a nascent stage with meagre volumes due to limited participation, the Sebi chief said, "There is a need to relook at the policy to develop interest rate derivatives market. We are in consultation with the RBI for this."

He said the IRF (Interest Rate Futures) market is closed to many players with the exclusion list being much higher than the inclusion list.

For instance, insurers are not permitted to hedge existing investments in government securities or corporate bonds, so are NBFCs and housing finance companies.

On the contrary the OTC market sees good volumes but are restricted to a handful of players, he said.
Exchange traded interest rate futures remain constrained with daily volumes of around only Rs 1,800 crore on the NSE and BSE combined.

[The Times of India]