• There are 3 ways of raising funds – banks, equity markets and bond markets.
• Since banks are incapable now, corporate bonds are a good source as they provide long term fund which banks are not able to give due to their stressed assets.
• This can help especially the small and medium enterprises and infra companies.
• Moreover, long term investors like pension and provident fund companies will find it easier to invest in these bonds
• Budget has announced an electronic platform for issuance, trading, settlement and reporting for corporate bonds based on RH Patil committee.
• Budget 2019 announced credit default swaps, corporate bond repos to deepen bond market. It allowed FPI to invest in infra debt bonds as also a trading platform for social orgs.
• RBI planning to restrict amount of loans corporates could take from banks and develop a corporate bond market to raise money. Sarfaesi act to be amended so that not just banks but bond trustees can also sue the company.
Problem with Corporate bonds –
• Underdeveloped bond market- barely 16% of GDP
• Low liquidity as buying and sharing is ljmited
• Limited investors like mutual funds, pension funds, FPI.
• Lack of reliable trading platforms
• Lack of confidence in settlement- In absence of a robust bankruptcy code, settlement of repayment of bonds of a bust company can create problems.
• No coordination among regulatory agencies like RBI SEBI
• Govt penchant of making financial institutions buy government bonds crowds out private bond market.
