Union Finance Minister Nirmala Sitharaman inaugurating the Corporate Debt Market Development Fund in Mumbai today.
Mumbai: The Ministry of Finance will enable the direct listing of listed and unlisted companies on IFSC exchanges shortly to help the global market start-ups and companies of like nature access the global market through GIFT IFSC [Gujarat International Finance Tec IFSC], which aspires to become India’s gateway for inbound and outbound requirements of the international financial services.
Union Minister of Finance and Corporate Affairs Nirmala Sitharaman announced this after inaugurating the Corporate Debt Market Development Fund (CDMDF) here today. She also initiated the muhurat trading on the Limited Purpose Clearing Corporation (LPCC) mechanism called AMC Repo Clearing Limited (ARCL).
ARCL started functioning with the first transaction done today. Both initiatives intend to deepen the functioning of the corporate debt markets, the Ministry of Finance stated.
Sitharaman referred to the Government’s vision for GIFT-IFSC, which “transcends much beyond the realm of traditional finance and ventures into the realm of thought leadership. We envision it as the true embodiment of Atma Nirbhar Bharat, a hub of ingenuity and innovation”.
The Finance Minister, in her speech for the Union Budget of 2021-22, had announced the creation of a permanent institutional framework to enhance secondary market liquidity in the Corporate Bond market during stressed and normal times, thereby instilling confidence amongst participants in the corporate bond market.
“The Budget announcement has today manifested in the form of the Corporate Debt Market Development Fund (CDMDF),” the Ministry of Finance said.
The LPCC has been set up with the purpose of clearing and settlement of corporate bond repo transactions and developing an active repo market, which will, in turn, improve liquidity in the underlying corporate bond market.
Sitharaman said that the growing size of the corporate bond market is accompanied by a growing diversity of issuers and markets. “We now have issuances by new types of entities, e.g. REITs [Real estate investment trusts] and InvITs [Infrastructure Investment Trust] pursuant to the Union Budget 2021, providing a legal framework for these entities to issue corporate debt securities,” she pointed out. Another important area is the issue and listing of municipal debt securities which has enabled market-based financing of infrastructure projects. As announced in this year’s budget, through property tax governance reforms and ring-fencing user charges on urban infrastructure, the Government is incentivising cities to improve their creditworthiness for municipal bonds, she said.
The Finance Minister described the Indian capital markets as a trendsetter of sorts in many aspects of trading, including being one of the fastest in terms of settlement of trade and also in certain areas related to risk mitigation and governance. “Our equity markets have witnessed broad-based participation from all segments – retail investors with more than 11.5 crores Demat accounts on one side of the spectrum to Small and Medium Enterprises (SMEs) raising funds through IPOs [initial public offering] on the other. We are witnessing robust and all-around growth of financial markets today,” she claimed.
The market for repo in government securities is one of the most liquid markets in the country. However, for repo in corporate bonds to take off, Sitharaman said the lack of a Central counterparty has been cited as one of the reasons. “Setting up of Limited Purpose Repo Clearing Corporation with the triparty repo services and the central counterparty services of AMC Repo Clearing Limited (ARCL) in the bond market are expected to offer better efficiency in collateral and settlement for its members, which will widen and deepen the corporate bond repo market. This institution will serve manifold purposes – will allow market makers to access cost-effective funding for their inventory, holders of bonds to meet their short-term liquidity needs without having to liquidate their assets and the opportunity to entities with short-term surpluses to deploy their funds in a safe and efficient manner,” she said.
– global bihari bureau
