Patil panel moots steps to activate bond mart

The Expert Committee on corporate bonds and securitisation, set up as outlined by finance minister P. Chidambaram in his Budget speech last ...

The Expert Committee on corporate bonds and securitisation, set up as outlined by finance minister P. Chidambaram in his Budget speech last year, has come out with a host of proposals to boost the bond market. Several of the committee recommendations could be included in this year’s Union Budget, a finance ministry official told The Indian Express.

The committee, headed by former NSE managing director Dr R.H. Patil, had a mandate to identify the factors inhibiting the development of an active corporate debt market in India and recommend policy actions necessary to develop an appropriate market infrastructure for the bond market.

Currently, the corporate bond market is highly illiquid and non-transparent. Primary market issues of debt paper are dominated by non-banking finance companies and secondary market trading is negligible. In fact, almost 97 per cent of India’s secondary market trading in debt securities is in government securities.

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While corporates are happy to come out with public offerings of equity, they shy away from issuing debentures to the public, opting instead for bank financing and private placements. In a voluminous report, the committee has recommended ways to alleviate the situation, including harmonisation of the stamp duty charged by different state governments on debt instruments. As stamp duty is a state subject, it has recommended that the Centre should coordinate with the states to bring uniformity in the stamp duty rates.

One key factor that makes secondary market trading in corporate debt papers is the requirement to deduct tax at source, that dissuades buyers and creates disparate prices. The panel has recommended that TDS should not be applicable to corporate bonds. Government securities, on which TDS doesn’t apply, have very robust trading.

In order to attract more corporates to issue debt through public issues, the Patil Committee has recommended a simplification and reduction in the disclosure and listing requirements.

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