RBI for improving data integrity to develop corporate bond market

RBI for improving data integrity to develop corporate bond market

The Reserve Bank of India (RBI) deputy governor, T Rabi Shankar, on Wednesday underlined the need to improve the level of transparency and increase the speed at which information and data in the corporate bond market move. This can be effected by elevating such disclosures akin to those maintained in the government market securities, he added.

“There has been feedback from market participants about the need for improving the timeliness and integrity of data on primary and secondary market transactions in the corporate bond market. This is arguably a low hanging fruit which we can aspire for,” Shankar said.

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Additionally, there is a need for adoption of uniform valuation methodology across investors, ideally through an independent benchmark administrator, he said.

The deputy governor stressed the necessity for diversifying the investor base, improving the access of lower-rated issuers and developing complementary markets, beyond which market development will be a continuous effort. Despite these measures, market participants should dilute expectations on the level of liquidity that secondary corporate bond markets will be able to achieve, Shankar said.

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“If international experience is anything to go by, the best we can achieve may be well short of the liquidity we are used to in government bond markets or equity markets,” he said. While Sebi is making efforts to develop secondary corporate bond market, there are certain constraints such as ‘buy and hold’ nature of investors and the predominance of private placement.

The investor profile also impacts the liquidity in the corporate bond market as it is largely dominated by institutional investors, which incentivises ‘buy and hold’ strategy, Shankar said. In FY22, the amount raised via public issuances of corporate bonds was about 2% of the amount of private placement. Sebi is trying to facilitate the setting up of a repo clearing corporation to develop repo market for corporate bonds that will improve liquidity in the market.

The corporate bond market is dominated by high-rated companies, Shankar said, citing data that out of the rated bonds issued in FY22 to the tune of Rs 22.6 trillion, 80% were rated AAA and another 1.5% were rated AA.