We talk of a great capital market in India. “Technologically India is the second most technologically advanced market in the world – the first is Nasdaq”- not my words, but the words of a white man who has dealt in all the developed countries in the world. He even told me that the FTSE has ‘kapli’ – something which we go rid off in the early 1990s.

RH Patil was gungho about the RETAIL DEBT MARKET, but unlike our capital market regulator the debt market regulator RBI does not want too many participants. This despite the fact that almost all our big scams are related to the Gsec not being available in retail lots. If we had a good vibrant debt market the interest rate changes by RR would have been passed on seamlessly to the borrowers and the lenders. The market is a far far more sensible and sensitive place for interest rate and credit risk changes. The JSPL downgrade would have resulted in the yield of JSPL bonds going up – and there would have been a ready market for higher risk (higher yield) paper.

Even with RR at the helm I see no attempt to increase the depth / width of the debt market. In the current budget PSUs are planning to raise Rs. 90,000 crore + in the debt market. Without a vibrant debt market I am reluctant to ask any client to put more than Rs. 50L in all the bonds put together. This is likely to restrict the markets. Once there is a market each company can create its own YIELD curve – allowing fine pricing. This would also reduce the risk in the bank’s balance sheet. RBI just does ‘dadagiri’ – how else will you place government bonds? Just call up LIC and a few big players…and push it down their throats…sad is it not?

In the current clean up that is happening in the banking sector the small borrower who wants between 4-5 crore is also getting stuck and is struggling to get his limits enhanced. The PSU banker has no problems at all in refusing to look at a borrower who wants money. Largely he will be prosecuted ONLY for errors of commission, nor for errors of omission. If we had a good secondary market for debt we would not have had….

Ok enough of my rant…here is what Ajay Shah has to say…

“The first problem is financial repression. We actually don’t have a bond market in India. We have a system where banks and insurance companies are forced to buy government bonds. We run a Potemkin village of a bond market, with computer screens that are exhibited to ignorant visitors. The Reserve Bank of India (RBI) runs the exchange, RBI runs the depository, RBI trades on the market, RBI regulates the market, RBI blocks most people from expressing their views on the market. Contrast this with the Securities and Exchange Board of India (Sebi) and the equity market, where Sebi does only one thing: regulate the market. There are few voluntary participants on the bond market, nor is there genuine price discovery.”

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