Mumbai: India’s capital markets and banking regulators are taking steps that would encourage investments in green bonds and also help expand the broader debt market.
To enable companies to issue Environmental, Social, and Governance (ESG) bonds locally, the Reserve Bank of India’s (RBI) chief general manager Dimple Bhandia talked about the need for an enabling framework for such green bonds within the country, at an Assocham event Friday.
“We find a lot of our companies are going overseas and issuing ESG bonds. This is an area where we need to make an enabling framework here,” said RBI’s Bhandia.
Talking about the recent changes in regulations that now allow banks to include corporate bonds in their Held to Maturity (HTM) portfolios, she said that it is expected to help in increasing demand for corporate bonds. Before that there was a differential regime-g-secs could be held in the HTM portfolio and need not be marked-to-market (MTM), but corporate bonds had to be necessarily in the trading book even if they were going to hold until maturity.
“A set of new investment guidelines was issued last year which came into effect from the first of April this year in terms of which banks can now hold corporate bonds in their HTM portfolios,” said Bhandia. “This was a long-standing ask from banks. Feedback from the banks is that this (the new investment norms) is widely expected to provide a boost to the demand for corporate bonds.”
Pramod Rao, executive director, Sebi, urged corporate bond issuers to be innovative and wants increased issuance of municipal bonds. He said that Sebi is exploring the expansion of thematic bonds, such as social and sustainability-linked bonds, to widen the market.
The corporate bond market over the past decade has grown from ’40 lakh crore to nearly ’47 lakh crore, said Rao. While this is a good growth, Rao said that bank lending is still much higher, with lending standing at approximately ‘185 lakh crore.
Also, Rao said that the challenges before the bond market is the limited secondary market trading. He said that the bond market needs to diversify and expand to address these issues and support long-term infrastructure projects. “We, through our outreach programme, continue to encourage issuance of municipal bonds. It’s quite small compared to the potential that we’ve witnessed in the US,” said Rao. “I would urge, especially pension funds, insurers and so on, to look at increasingly supporting municipal bond issuances.”
Just as the RBI governor has urged banks to be innovative in mobilising deposits, he said there is a need for corporate bond issuers to be as innovative as well.
“We need market participants who do trade to actually use the Request for Quote platform. Several of our initiatives have been to specify the thresholds…we will keep increasing those thresholds and the intent is that it becomes as deep a market for debt as it can be,” he said.
