Experts stress on the need for a coordinated effort from the government, Reserve Bank of India, Securities and Exchange Board of India and Insurance Regulatory and Development Authority (IRDA) to create a vibrant corporate bond market.
Analysts point out that the exisiting primary issuance guidelines are constraining issuance of bonds in the debt market by corporates. Additionally, the corporate bond market is a largely private placement driven market as 93 percent of total issuance was through private placement in 2011-12.
Public issues are difficult, slow, expensive, risky and inflexible with the issue process taking several months compared to other markets where the process takes a few days (for example with shelf registration), experts point out.
Experts also want the government to reduce stamp duty on debentures, which is typically high and are levied on an ad valorem basis and such high stamp duty, in turn, encourages the loan market instead.
Further, the rate of duty is variable depending on location, nature of issuer and investor. The level and complexity of stamp duty does not encourage the development of bond market, experts argue.
Major issuers of bonds in 2011-12 were banks and financial institutions (42 percent of total issuances) followed by finance companies (26.4 percent). To finance urban infrastructure requirements, municipal bonds issued by urban local bodies (ULBs) may be explored as an important source of financing.
The municipal bond market needs to be developed by providing a robust regulatory framework and possibly, tax-free status. The IRDA and the Pension Fund Regulatory and Development Authority’s investment guidelines in this regard should be reviewed.