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Corporate entities with low ratings will be the worst hit. Better-rated firms will fare better because lenders will compete with one another to extend credit, the report said, that bonds will also get good response from the market. At least for a year, there will be ample liquidity in the system, it added.
The Centre is in the process of finalising the modalities for a “backstop facility” for the corporate bond market, as announced in the Union Budget in February, a senior government official informed on Friday. The announcement was made by Anand Mohan Bajaj, the additional secretary in the Union Finance Ministry, at an event organised by Confederation of Indian Industry (CII). He said that the government in consultation with the Reserve Bank of India increased the limit of foreign investor participation in corporate bonds to 15% from 9%.
He added that the Union Finance Ministry is working on a comprehensive facility that would instill confidence among the participants of the corporate bond market.
Work needs to be done on bond market
Bajaj further added that a lot of work needs to be done on the bond market for which the government and all the major participants are regularly discussing how to develop India’s bond market.
This facility, which was first announced by the Finance Minister Nirmala Sitharaman in her February Budget speech, would be an entity that would allow trade in relatively non-liquid investment-grade corporate bonds and be readily available during times of stress to buy such bonds from participants in the secondary market. Such a facility would also be available during non-stress times as well.
‘Expect big announcement later this year’
Sanjeev Sanyal, the Principal Economic Advisor, speaking at the same event stated that the government and the RBI are working on including Indian sovereign bonds in global bond indices. He added that some announcement in this context could be expected later during this year.
Sanyal further added that in 2020 the government opened up a section of the debt market to foreign players, but the investments were just 50% into what was opened.