Revamping the bond market  

Development of the country's bond market has so far been marked by ritualistic emphasis --- verbal or otherwise. Nothing substantive has been done by the key players, including the central bank and the securities regulator, until now. Nearly 12 years have gone by since its launch in 2006, but the bond market, seen as a very important vehicle for mobilising long-term financing in both private and public sectors, has remained underdeveloped. This is at a time when the global bond market had expanded threefold and crossed the 100 trillion dollar mark.

However, the government bonds, equivalent to nearly 8.0 per cent of the country's gross domestic product (GDP), are somewhat visible. But the same is not true in the case of corporate bond which is almost non-existent. Although sizeable, the government securities are held by institutional investors like banks and insurers as part of their regulatory requirement. A very small part, nearly 4.0 per cent, is left for investment by individuals, provident and gratuity funds of government and non-government agencies, foreign investors, mutual funds etc. The government bonds are hardly transacted in the secondary bond market.

The bond market has remained underdeveloped mainly because of apathy on the part of both government and private sectors. The government in particular issues bonds mainly to finance its budget deficits at rates much lower than that of its savings tools. It could well finance large and cost-intensive infrastructure projects issuing long-term bonds for public subscription. Trading of such bonds in the secondary market would have attracted corporate bodies to issue their own bonds. Instead of granting financial assistance to corporations under its control, the government should ask those bodies to raise funds by issuing bonds.

Private sector players are found unwilling to come to the bond market as they prefer bank financing for their cost-intensive projects. Banks, too, for reasons best known to them, tend to accommodate such funding need. But while doing so, the banks are already counting a huge cost as long-term lending with short-term deposits is not a viable option. Thus, it is widely believed that banks' reluctance to offer long-term financing might force private sector operators to go to the market with bonds carrying attractive yield rates. Selling such bonds would not be difficult for there are plenty of savers in the market who want stable return on fixed terms. But what is essential in the first place is an organised bond market and regulators' proactive role in this connection. Bonds are also as risky as other securities traded on the stock market. So, the Securities and Exchange Commission would be required to do necessary scrutiny before allowing any corporate bond in the market. To set the trend right, the government should come up first in the market with long-term bonds carrying attractive yield rates. This would also reduce its dependence on savings tools for funds.

Besides, city corporations and municipalities across the country can also float bonds to mobilise funds for their development schemes. The incumbent finance minister the other day, like his immediate predecessor, laid emphasis on strengthening bond market for long-term financing. Regulators concerned, as a follow-up measure, held a meeting and decided to make coordinated efforts for revamping the bond market. Hopefully, they would stick to their plan to put in place a vibrant bond market that the economy needs badly.