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Cozy bank-corporate ties impeding bond mkt: PC

‘I think the corporate bond market is not developing because corporates think that banks are ready to lend them money and the banks indeed are ready to give them money,’ he said at an event to commemorate the 20th anniversary of the National Stock Exchange of India (NSE) here.

‘Banks and corporates have entered into a very cozy relationship... If only the bank says no to corporates, they will be forced to go to the bond market,’ he said, adding such a working is ‘unheard of’ in a developed market.  Reacting to the minister’s comments, State Bank of India SBI Chairman Arundhati Bhattacharya said that top-rated corporates get their funding from the commercial paper market and it is only the lower-rated companies which come to banks.

‘We were telling time and again that the better-rated corporates don’t come to the banks for working capital; they go to the CP market. It is only the persons who cannot access those bond markets, they come to us,’ she said. She added that the mandate of insurance companies and provident funds to invest only in high-rated companies makes it harder for a lesser rated corporate to raise money via bonds.

According to a November 2013 study by ratings agency Crisil, corporate bonds accounted for only 21 per cent of the overall outstanding debt of Rs 62 trillion in the country, with the rest being fully controlled by the government securities market.

Chidambaram also announced that the Government may promulgate the ordinance giving greater powers to the Securities and Exchange Board of India (Sebi) for the third time if the Parliamentary Standing Committee scrutinising the Bill to replace it does not submit its report in the current Winter Session, which ends on December 20. ‘Legislation and law making in India is a complex process,’ he noted.

The FM recalled that the committee was to submit the report on first day of the Session (December 5), but that is yet to be done. If the report does not come by the last day of Session, the government will have to, in an unprecedented move, promulgate the ordinance for third time, the minister said.

The ordinance has already been promulgated twice so that the powers given to Sebi remain in place for effective supervision of markets and regulatory actions, he pointed out. The ordinance provides powers to the Sebi Chairman to authorise an investigating authority or any other officer of the regulator to conduct search and seizure under the Sebi Act. It also empowers Sebi to make regulations in relation to search and seizure. Chidambaram pitched for limiting the RBI’s mandate to monetary policy formulation and banking regulation, and for delegating its other functions to government or other regulators.

‘It (the RBI) is the monetary authority and it will be a regulator of banks. But all other functions I think should be revisited and we should ask ourselves whether RBI is the best authority to discharge those functions or is there any other authority in the system which can take over those functions or is it necessary to create a separate authority,’ he opined.

He also noted that the the Financial Sector Legislative Reforms Commission (FSLRC), headed by Justice B N Srikrishna, made similar recommendations.
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