Provident Funds, pension funds can soon invest in corporate bonds

Provident Funds, pension funds can soon invest in corporate bonds

The Finance Ministry said it will soon relax norms to enable pension and provident funds to invest in the corporate bond market, with a view to provide an additional funding source for infrastructure projects.

Addressing leaders from the infrastructure sector, Department of Economic Affairs Secretary Arvind Mayaram said the government is keen to develop the corporate bond market.

Among other things, he said relaxation of investment guidelines of pension and provident funds is required to enable the participation of a long term and stable class of investors in corporate bond market.

"This is one area (relaxation in investment norms) we are very actively looking at and we would be coming out with some new guidelines in the near future," Mayaram said.

While India has a very advanced G-sec ( government securities) market, the corporate bond market is relatively under-developed.

A developed corporate bond market provides additional avenues to corporates for raising funds in a cost-effective manner and reduces reliance of corporates on bank financing.

Also, Mayaram said, strengthening of legal framework for regulation of the corporate debt market is required by amending rule and regulations, like SARFAESI and I-T Act.

"We are aware of this and looking at that to see how we can amend these to enable the corporate market to get its debts," he said.

He further said that efforts were on to remove legal and regulatory constraints for nascent products such as municipal bonds, credit-default swaps, credit enhancement and securitisation receipts.

"We are examining what needs to be done to deepen the corporate bond market. They (steps) are all on the anvil. We are looking at them and we will be announcing those which are feasible very quickly," he later told reporters.

India requires USD 1 trillion in the 12th Five Year Plan (2012-17) to develop infrastructure and the government expects half of the amount to come from the private sector.

Mayaram said there is also need to look into the capacity of the private sector to handle large volume of infrastructure works which are expected to be executed during the 12th Plan.

"The private sector lacks that capacity. We will not be able to produce the kind of large companies and more companies who are in position to bid for large projects," he said.

In this backdrop, he said it is important to reach out to foreign companies who are capable of executing large projects for encouraging the private sector to form joint ventures.

He said such joint ventures are needed for expanding implementation and execution capacity of domestic players "because ultimately there would be only as much finance as there are those who can use it".

Referring to Exchange Traded Funds (ETFs), which can be used for funding infrastructure, Mayaram said they are yet to take off in a big way. 

http://articles.economictimes.indiatimes.com/2012-11-09/news/35014385_1_corporate-bond-market-infrastructure-sector-pension-and-provident