It is essential to establish a robust and enabling regulatory framework to support Indian companies in issuing environmental, social, and governance (ESG) bonds within the domestic market, said Dimple Bhandia, chief general manager at the Reserve Bank of India, on Friday.
“A lot of our companies, we keep interacting with the global banks… We find a lot of our companies are going overseas and issuing ESG bonds. So I think this is an area where, you know, we need to make an enabling framework here for the companies to be able to issue it here,” she said.
However, she also highlighted the strong response from foreign portfolio investors to the Voluntary Retention Route (VRR) facility, noting that 99 per cent of the funds under this scheme are invested in corporate bonds.
“Where there has to be significant interest is another route we put in place in 2019, which is called the voluntary retention route. I’m not very sure how many of you are aware of this, but this is a route under which foreign investors can bring in money. As per the scheme, they can bring in money both into corporate bonds and government securities,” she said.
“But I can tell you, 99 per cent of the money brought into this route is in corporate bonds. So this has really taken off, and we are happy. In fact, we were forced to increase the limit on two occasions because of the popularity this has had,” she added.
Bhandia said that the corporate bond market requires the development of complementary markets, noting that one of the key factors supporting liquidity in the government bond market is the presence of a highly active repo market.
“Where the corporate bond market really requires development is in the complementary markets. Remember, when you look at the government bond market, one of the major factors which supports liquidity in the government securities market is an active repo market,” she said.
Additionally, she highlighted that the credit derivatives market has been another area that has struggled to take off. The regulations for credit derivatives were first issued in 2011, but progress stalled after just one initial stage. Following feedback that the regulations were too restrictive, particularly since banks are more natural buyers of protection rather than sellers due to the risks they already carry, the regulations were revised and reissued in 2012. However, since then, only a single trade has occurred, reflecting a lack of momentum beyond that initial stage.
First Published: Aug 09 2024 | 6:26 PM IST
