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Finance Management | Building a Junk-bond Market in India & its Impact on Overall Economy

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Building a Junk-bond Market in India and its Impact on Overall Economy

- by Ankit Chetan & Sudhanshu Duggal *

Previous

Page - 18

Development of Corporate Debt Market

Constraints (faced in general in developing economies)

  • Lack of good quality issuers
  • Lack of institutional investors
  • Lack of Supporting infrastructure
    - Legal
    - Regulatory
    - Technological
  • Preference of corporate to borrow
    - Cost of issuances high
    - Ease of renegotiation
  • Absence of anonymity
  • Fragmentation of market

    Preconditions for growth of debt market

  • Well-functioning Government Securities Market
    - Benchmark issues (on going)
    - Regulatory and legal Infrastructure (in place)
    - Technology (in process)
    - Clearing and settlement system (in place)

  • Efficient Money Market (on going)
    - Effective transmission of monetary policy
    - Stability in interest rates

  • Public Disclosures (on going)
    - To ensure public confidence
    - Proper accounting, auditing and disclosure rules
    - Credit Rating System (exists)
    - To give relative ability of borrower to repay
    - Bankruptcy Laws (need attention)
    - To define investors legal ability to enforce repayment
    - Currently engaging international attention
    - Collective Action Clauses and Code of Conduct
    - Avoid Public Sector Crowding out (no statutory constraint)
    - SLR Investments
    - Availability of Hedging Instruments (on going)
    - OTC and Screen-based Market for derivatives

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    * Contributed by -
    Ankit Chetan & Sudhanshu Duggal,
    National Institute of Industrial Engineering (NITIE),
    Mumbai.

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