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The banking crisis can very well set off other hand, a strong junk bond currency crisis and spill over to other economic institutions as well. On the market, it could serve both as a substitute and complementary to bank finance. Thus, junk bonds market enable better risk distribution and reduction in the levels of systemic risk.

This argument gathers even more credibility in the light of trends prevailing in the banking sector. Until a year back, the commercial banks were reporting substantial profit on account of treasury activities, but with the interest rates nudging upwards, the focus of banks has shifted towards corporate advances. The steady rise in corporate advances over the past two quarters bears testimony to this argument. This is the time when risk assessment of the commercial banks can go awry. It is to be remembered that a well structured market with its own battery of analysts can do a far better job than commercial banks with regard to decisions as to the availability and quantum of credit for various companies.

It has been established that junk bond market performs at its best either when an economy slowly limps out of recession or when a fledgling economy takes its first few steps towards sustained and accelerated economic growth. Judging by these parameters, as Indian economy finally parts away from its tryst with "Hindu rate of growth", an efficient means of financing start ups becomes even more necessary which can be provided by junk bond market.

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* Contributed by -
Saurabh Joshi & R. T. Sivasubramaniyan,
PGDM - II Finance,
SCMHRD, Pune.