Must improve corporate bond trade data integrity, says RBI Deputy Governor

Highlighting challenges faced in deepening India’s corporate bond market, Reserve Bank of India (RBI) Deputy Governor T Rabi Sankar said that improving the quality of trade data in the market and adopting a single valuation method were key aims to be aspired for.

“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,” Sankar said while delivering the keynote address at the Bombay Chamber of Commerce and Industry on Wednesday.

“This is arguably a low-hanging fruit we can aspire for. It has also been highlighted that there is a need for adoption of uniform valuation methodology across investors,” Sankar said, adding that valuation by an independent benchmark administrator would be ideal.

Emphasising the importance of high-quality and timely information, Sankar pointed out that in the government bond market information about each trade was disseminated in real-time. Government bond valuations are carried out the Financial Benchmarks India.

Sankar said while secondary market trading in corporate bonds had not risen in consonance with the size of the market, the challenges in enhancing liquidity in the domestic corporate bond market were not unique to India. “Comparable data on turnover ratios of corporate bond markets of different jurisdictions are not readily available but approximate assessments do not indicate that the Indian corporate bond market lags its peers in respect of secondary market liquidity,” he said.

The overall settled value of secondary corporate bond market transactions had risen to Rs 14.37 trillion in 2021-22 (April-March) as against Rs 4.5 trillion in 2010-11, Sankar said.

Sankar noted that one of the impediments to a deeper corporate bond market was the fact that the market was dominated by highly rated issuers, pointing out that in the previous financial year, 80 per cent of issuances in value terms were from entities rated AAA.

In the previous fiscal year, ratings were assigned to 1,235 corporate debt papers amounting to Rs 22.5 trillion. Of these, 22.5 per cent were rated AAA and 29 per cent were rated AA. Only 5.3 per cent of issuances were non-investment grade, Sankar said.

“While we can discuss the reasons for this trend, it is clear that the corporate bond market largely meets the needs of highly rated corporates,” he said.

The RBI deputy governor also pointed out the overwhelming tendency for corporate entities to prefer private placement of bonds instead of public issuances despite the fact that the latter provided well-documented advantages in terms of transparency and efficient price discovery.

In the previous financial year, the quantum of funds raised through public issuance of corporate bonds amounted to Rs 11,589 crore, a mere 2 per cent of the sum raised through private placements which were worth Rs 5.9 trillion, Sankar said.

“Sebi has been making efforts to make the private placement process more transparent and efficient, like introducing the Electronic Bidding Process on stock exchanges,” he said.

Sankar said due to a limited investor base for capital bonds issued by Indian lenders, many of them were compelled to tap global markets. There exists a need to look at factors behind this phenomenon and whether they were aligned to international norms and standards, Sankar said.

Flagging a similar trend of Indian companies accessing global markets for fund-raising, which is compliant to environmental, social and governance (ESG) norms, Sankar said there was a need for greater transparency to facilitate better conditions for ESG bonds.

“The announcement in this year’s Union Budget referring to mobilisation of resources via ‘green bonds’ is also expected to enable a price anchor for ESG bonds in due course,” he said.

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