Welcoming the recent steps taken by the Reserve Bank to develop a vibrant corporate bond market, SBI chief Arundhati Bhattacharya on Friday said there is a need to develop a secondary market for lower-rated papers for the market as a whole to gain traction.
“The only problem that remains is the fact that this market is only open to higher-rated corporates. It is not yet accessible to people with lower ratings,” she told reporters on the sidelines of a SBI Caps Securities event. She added that long-term investors like insurance companies and pension funds are not able to take part in the about `20 trillion corporate bond market as they are required to invest only in higher-rated paper. “They are not at liberty to put more money into lower rated papers but they may be giving higher coupon,” she said.
Bhattacharya was replying to a question on the steps taken by RBI late last month to deepen the bond market which has not really taken off as desired due to a host of factors such as lower market depth, absence of a hedging mechanism and lack of a variety of debt instruments entering the market.
Even after working on to deepen the market for the past decade or so by the central bank and regulator Sebi, it is only about `20 trillion in size, which is only a fraction of the Government securities market.