As per Dimple Bhandia, chief general manager of Reserve Bank of India, a strong and supportive regulatory framework must be put in place to assist Indian corporations in issuing environmental, social, and governance (ESG) bonds on the domestic market.
Noting that corporate bonds account for 99 percent of the funds under this program, she further emphasised the positive reaction received by international portfolio investors to the voluntary retention route (VRR) provision.
Many of our companies are expanding abroad and issuing ESG bonds, as we can see. To allow the corporations to release it here, we must create an enabling structure in this area, Bhandia stated.
“An additional pathway we implemented in 2019—the voluntary retention pathway—that allows international investors to contribute funds must elicit substantial interest. They have the ability to invest in both government and business bonds. Corporate bonds comprise ninety-nine percent of the funds injected through this mechanism. We are pleased that this has become so popular. The popularity of it compelled us to raise the restriction twice, she continued.
Bhandia claimed that the emergence of complementary markets was necessary for the corporate bond market and that the existence of a thriving repo market was a crucial component sustaining the liquidity of the government bond market.
In order to support the corporate bond market, supplementary markets must grow. “An active repo market is one of the major factors that supports liquidating the government securities market when you look at the government bond market,” the speaker stated.
Furthermore, Bhandia emphasised that the credit derivatives market has been slow to take off. The rules pertaining to credit derivatives were first published in 2011, however after only one phase, development came to a standstill.
In response to criticism that the rules were overly onerous—especially given that banks are more suited to be buyers of protection than sellers given the risks they currently bear—the laws were updated and republished in 2012. save nothing has happened save one deal since then, indicating a lack of momentum.