its about the reforms in debt market happen in 2015

1. Submitted by –Shina
Tanya &
Vidushi

3. • Debt market refers to the financial market where
investors buy and sell debt securities,
mostly in the form of bonds.
• These markets are important source of funds,
especially in a developing economy like India.
• The debt market in India is also considered a useful
substitute to banking channels for finance.

4.  Ensuring financial system stability
 A liquid corporate bond market can play a critical role because
it supplements the banking system to meet the requirements of
the corporate sector for long-term capital investment and asset
creation.
 Enabling meaningful coverage of real sector needs
 The financial sector in India is too small to cater to the needs of
the real economy.
 The debt markets is required to grow manifold to ensure that the
financial sector becomes adequate for an economy as large and
as ambitious as India’s.

5.  Creating new classes of investors
 Financial institutions like insurance companies and
provident funds have long-term liabilities and do not
have access to adequate high quality long-term assets
to match them.

6.  India recorded a Government Debt to GDP
of 65.50 percent of the country's Gross
Domestic Product in 2013. Government
Debt to GDP in India averaged 73.98
percent from 1991 until 2013, reaching an
all time high of 84.30 percent in 2003 and
a record low of 65.50 percent in 2013.
Government Debt to GDP in India is
reported by the Ministry of Finance,
Government of India.

8.  IN MARCH 2015(RBI) deputy governor R Gandhi has
asserted the need for regulatory and
administrative reforms, an expansion in the
investor base and securitisation of corporate
debt instruments to improve the corporate bond
market. The listing, disclosure requirements and
procedures have to be simple and less
complicated,” he said.
 One of the prime concerns, Gandhi noted, was
the absence of liquidity in the corporate bond
market. He said the trading in the Indian bond
markets was characterised by the tendency of
investors to buy and hold the instruments as well
as trading in select maturities, both of which
inhibited liquidity.

10.  The establishment of a statutory Public Debt
Management Agency which will help both
external and domestic debt under one roof.
vital factor in promoting investment in India
including infrastructure sector and to
deepening of Indian bond market .
 Shifting of the government bond market
regulation from RBI to SEBI.

11. REFORMS TAKEN FOR DEBT MARKET IN
UNION BUDGET 2015

12. When RBI is given the responsibility of achieving low
and stable inflation, this is a difficult problem for two
reasons.
At present, RBI has a conflict of interest: of doing
investment banking for the government. This conflict of
interest is removed by setting up PDMA. This is also a
good thing for bond buyers as it's safer buying bonds
from a person who does not know what the next interest
rate decision will be.

13. BENEFITS OF THE REFORM -
•Bond market reforms improves the working of the
corporate and infrastructure bond market, thus
improving the investment climate for infrastructure
investment and private corporate investment.
•It will reduce the Statutory Liquidity Ratio, and thus
free up greater space for banks to lend to private
enterprise. This will largely benefit small and medium
enterprises as this is the segment which is most
dependent upon bank borrowing.

14.  change of the settlement cycle of primary
auctions for treasury bills (T-bills) from T+2
to T+1 basis; and c) re-issuance of state
development loans.
 As part of continuing measures to promote
liquidity, the Reserve Bank will formulate a
scheme for market making by primary
dealers in semi-liquid and illiquid
government securities.

15. Credit Default Swaps could be relaunched and steps
to enhance liquidity in corporate bonds may be
announced and a full-fledged and screen-based trading
system for corporate bonds could be put in place
"A similar step could perhaps be taken by asking
merchant bankers in corporate bonds to provide
liquidity. Today, once the bonds get sold, these
merchant bankers no longer provide liquidity to the
market," said R Sivakumar, head of fixed income and
products, Axis Mutual Fund
More reforms likely for debt market
in FY16 -

16. RBI also announced steps to boost retail
participation in government securities. These
include a web-based solution for all mid-
segment and retail investors who have gilt
accounts to participate in the G-Sec market,
and providing them direct access to both
primary and secondary market platforms
without any intermediary.

17. • A mutual fund is an investment vehicle with a pool of funds collected
from investors to buy securities such as stocks, bonds and money
market instruments.
•Mutual fund managers pumped in over Rs. 22,000 crore in the debt
market in April, mainly on account of positive investor sentiment and
the government’s reforms agenda.
• In comparison, they have invested a net amount of Rs. 9,244 crore in
the stock markets.
• Moreover, mutual fund houses are upbeat about overall inflows in
equities and debt market for the current financial year (2015-16) as
well.
MFs invest Rs. 22,650 cr in debt market last
month

18. •As per data released by the Securities and Exchange Board of India,
mutual fund managers invested a net amount of Rs. 22,650 crore in the
debt market in April.
•Besides, fund managers had invested a net amount of nearly Rs. 6 lakh
crore in debt market in the last financial year.
•In comparison, Foreign Portfolio Investors (FPIs) made a net investment
of Rs. 3,612 crore into debt market in April.
•A mutual fund is an investment vehicle with a pool of funds collected
from investors to buy securities such as stocks, bonds and money market
instruments.

19. India's bond market reforms face
reversal-
• India's government had promised a more predictable,
less aggressive tax regime.
• Foreign portfolio investors said they were shocked by
local tax authorities’ move from March to levy minimum
alternate tax (MAT) on their earnings.
• Finance Minister Arun Jaitley’s speech around MAT in
the February budget, which sought to remove uncertainty
around the treatment of the tax on foreign investors.

20. FinMin in Talks with RBI to Reform
Corporate Bond Market-
• In a bid to boost the corporate bond market, the Finance Ministry and
the Reserve Bank of India are discussing measures that would reduce
the arbitrage between corporate bonds and bank loans, and encourage
banks to lend even short-term funds to corporates through bond
subscriptions, a senior Finance Ministry official said.
• The government has suggested that the RBI may allow banks to keep
corporate bonds in held-to-maturity bucket, in line with the treatment
for corporate loans. The Finance Ministry has also proposed that the
central bank may prescribe market valuation of bank loans, similar to
mark-to-market valuation for corporate bonds, the official said.
• “The idea is to encourage banks to play a larger role as buyers in the
corporate bond market. While bonds are marked to market, bank loans
are carried on the books at acquisition cost, and losses to bank loans are
booked on realised loss basis with a considerable lag. This discourages
banks’ buying in bond market,” the official said.

21. • We have suggested RBI to allow banks to classify bonds and loan
assets in HTM (held to maturity) or AFS (available for sale) category
based on declared intention,” the official said. Other measures that
were discussed with the central bank are possible restrictions on
banks cash credit system to corporate. Instead, banks should be
encouraged to lend through subscriptions to bonds and debentures,
the finance ministry official said.
•The government and the RBI also discussed review of disclosure
and listing requirements for the corporate bond market. Plans are on
the anvil to further liberalise norms for top rated issuers the official
said.
• In its Financial Stability Report last month, the RBI said there is a
need to ‘significantly’ improve liquidity in the secondary market for
corporate bonds to ensure that various steps taken to deepen the debt
market are fruitful.

22.  Evolution of Public Debt Management in India-
• The main objective of PDM in India, in particular, management of
market borrowings, is to minimise the cost of borrowing over the
medium to longer term as also to contain the rollover risks while
raising the borrowings of the Governments.
• Since its incorporation, the RBI took over the responsibility of
managing the public debt of the Centre and the sub-nationals, besides
playing the role as a banker in an environment when the financial
system was underdeveloped.
• Prior to the reform period, debt management in India was
characterised by issuance of debt at administered interest rates to a
captive investors, i.e., banks and financial institutions.

23.  Risks Associated with Sovereign
Debt Management-
• Market risk is associated with changes in market conditions such as
interest rate, exchange rate, commodity prices, and the concomitant
impact on the cost of debt servicing of the Government.
• Changes in interest rates affect debt servicing costs, when fixed rate
debt is refinanced and the coupon of floating rate debt is reset.
• Hence short term debt is usually considered to be more risky than long
term fixed rate debt. Therefore, the RBI issues a combination of both
fixed and floating rate securities, but mainly strategies for fixed rate
securities, with maturities upto 30 years.

24.  Sustainable Public Debt-
• As part of public policy, debt management framework also
ensures that the impact of government financing requirements and
debt levels on borrowing costs are sustainable. The sustainability of
debt requires governments to be both solvent and liquid, i.e., a
country’s ability to service all accumulated government debt at any
point in time.
• Generally, the issue of debt sustainability is analysed through
ratios such as debt service ratio, interest payments to net tax
revenue, debt to exports and public debt to GDP among others.
• Cross-country analysis and simulations suggest that a debt to GDP
ratio in the range of 60-65 percent by 2015/16 might be suitable for
India (IMF, 2010). Debt is said to be tolerable if its servicing does
not impose an intolerable burden on the fiscal position.

25. THANK YOU