'Vibrant secondary market, liquidity to help develop bonds'

New Delhi: A vibrant secondary market and higher liquidity will help in development of the corporate bond market and drive economic growth, a Sebi official said.

"The development of the bond market is linked to the development of an economy as it allows efficient flow of capital from the savings area to where it is needed," Sebi Whole-time Member G Mahalingam said at an event organised by industry body Assocham here.

Traditionally in India, government securities had been treated as the only high quality liquid assets. Over time, corporate bonds will also be considered as high quality liquid assets and the government is slowly yielding its place in favour of bonds, he added.

Mahalingam felt that people recognising the importance of such instruments is contingent on vibrancy of the secondary market for bonds.

"Corporate bond market is going to be very robust if bonds markets can provide the kind of liquidity given by bank deposits," he said. Besides, weaning companies away from bank loans will facilitate in development of the bond market, he added.

Both RBI and Sebi, according to the Sebi official, have put in place several measures in the last 3-5 years, which will actually lend greater attractiveness to bonds, particularly to the secondary market trading in such tools.

Speaking at the event, Crisil Associate Director Bhushan Kedar said Indian bond market has not grown the way it should have due to structural constraints -- dominance of banks in lending, risk appetite of investors limited to higher ratings, regulatory arbitrage between loans and bonds and prescriptive regulatory limits on investments.

"We need to facilitate larger institutional investment from mutual funds, insurance and pension funds in corporate bonds and ensure facilitative policies and infrastructure from the perspective of both issuers and investors for the development of the bond markets," he said.