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Mr. Badri Nivas

Mr. Badri Nivas, Director, Risk Treasury, Citi Bank, who was one of the speakers at Finance Continuum 2011, came on the stage at the post-lunch session. He discussed “the need for a strong corporate bond market in India”. Pointing out that India has a too small corporate bond market with a huge potential, he talked about the key drivers for the need to develop the corporate bond market and took a realistic market approach to discuss about the investment in this market.

 He started the discussion with the emphasis on the small size of Indian corporate bond market. Mr. Nivas explained the texture on issuance in the year 2010 by explaining the issuance trends in corporate bond market in India by various companies with different parameters (e.g. Tenor,rating and type of the companies). Then he shifted the discussion to talk about the various prospects of Indian corporate bond market. Some of them were capacity, placement, rating, interest rate/security, tenor, regulatory considerations, domestic mutual funds, FIIs, commercial banks, insurance companies and pension funds among others.

To specify the need of an active corporate bond market in India, Mr. Nivas showed several reasons. He said that it would result in high economic growth and significant amount of funding as there would be foreign flows for funding growth. It would be effective in reducing the predominance of the banks as the suppliers of credit. Due to the absence of a strong corporate bond market, there are limitations especially for long tenor funding. Higher capital requirements can also be obtained under Basel 2 & 3 in a corporate bond market. To invest in a corporate bond market would be highly beneficial and cost effective for the high rated companies. It would encourage in innovation and new product development in various industries. He also mentioned that alternate investment options, which are restricted because of the regulations imposed by the Reserve Bank of India(RBI), would also emerge for investors.

Then he moved to the subject of foreign financing of Indian growth. He talked about the high government debt in India with continuing high fiscal deficit and its challenges. Due to high reserve requirements, there are high credit requirements in excess of adjusted deposit growth. He also mentioned about the upward pressure on interest rates.

To clarify the need of foreign financing in Indian corporate bond market, he pointed out four reasons. Firstly, the focus has been on equities for long, till now. Secondly, regulatory reluctance does not allow FIIs(Foreign Institutional Investments) to flow into debt. RBI has been very cautious about this matter because it may cause currency appreciation. After the lessons from Asian Financial crisis, which caused a huge flight of capital away from asian economy, RBI is too reluctant to allow this.

Mr. Badri Nivas presented a realistic approach for the lack of a strong corporate bond market. He said that very few developed countries had a dominant bond market as it is mainly dependant on the strength of banking systems. On this connection, he drew a comparison between demand supply and infrastructure improvements. As he explained, market suffers more from lack of demand and supply and less from infrastructure. If demand and supply can be improved, then infrastructure improvement is most likely to follow. He also mentioned that demand should be improved for bonds.

To discuss about how to improve the supply of bonds, he said that the supply should be measured first. For this, stamp duty guidelines need to be reformed and to be made uniform across states. Issuance under bank guarantee is required. It will help lesser-known issuers, as investors likely to rely on bank's due dilligence. Norms need to be relaxed for innovative instruments. This, in turm, will give importance for innovation in banking deposit products.

He also proposed for various other infrastructure improvements. For example, he mentioned about enabling regulations for development of REPO on corporate bonds.