RBI TO UNVEIL NORMS FOR CORP BOND REPO

THE RESERVE BANK OF INDIA (RBI) is on track to put in public domain the draft guidelines for repo in corporate bonds. The central bank is also set to have a policy frame-work in place for the introduction of credit derivatives, with adequate safeguards, factoring in the lessons from the global crisis, according to RBI deputy governor Usha Thorat.
The current regulatory policies in India do not allow banks to guarantee corporate bonds. By allowing repo or ready forwards - a repurchase facility that allows banks, mutual funds and insurance companies to borrow against corporate bonds - there could be more incenvtive for corporates to tap the market for funds directly through the issue of bonds. It makes possible for investors in these bonds to trade in the secondary market, thereby making these bonds liquid.
"It is argued that for the development of corporate bond market, banks should provide credit substitutes such as guarantees. But experience of other countries, particularly china and korea has not been encouraging." said Ms Thorat in here address at the "Conclave of CEOs and CFOs" organised jointly by the Institute of Public Enterprise, NMDC, CII (AP) and CEO Clubs India.