Foreign banks dominate IRF market,PSU banks nowhere in the picture

What’s on the anvil?

According to Gopinath,the introduction of credit default swaps is on the anvil. “We are at an advanced stage of introducing other currency pairs for currency futures and are examining the issue of allowing plain vanilla currency options in consultation with Sebi,” she said at the FIMMDA-PDAI meet here.

Repo in corporate bonds is also on the anvil. “The feedback received on the draft guidelines (corporate bond repo) has largely been positive but the key issue that has been raised relates to inclusion of short term money market instruments such as CDs/CPs as eligible securities for repo. To begin with,it is proposed to start only with highly rated bonds. The final guidelines in this regard would be issued shortly,” she said.

Short-term NCDs ruled out

The Reserve Bank of India has ruled out any relaxation in the minimum tenor of non-convertible debentures (NCDs) from the proposed 90 days to 7 days. “This cannot be acceded to as under the law,corporates are prohibited from issuing unsecured debentures with maturity of less than 90 days. Allowing markets to issue very short-term instruments can have systemic implications. In any case,there are other instruments in the short-end like repo,CBLO and CPs that can meet the requirement of investors,” Gopinath said.

However,she said the suggestion of the market participants in expanding the eligible entities that can act as debenture trustees for the issuance of NCDs with less than one year maturities is being examined by the Reserve Bank.

Concern over rating agencies

Another area where progress has been slow relates to the rating agencies. “There have been some proposals to mitigate conflicts between raters and issuers who pay them but these have largely been in the nature of more disclosures by rating agencies and separation of the consultancy/advisory roles,” Gopinath said.

Some of the fundamental issues have been left unaddressed,particularly the methodological issues,accountability arrangements and over-stretching of rating agencies. “A key issue that has not been addressed is the ratings given by rating agencies based on implicit support without the need to disclose the rating status without such implicit support. From the point of view of transparency to investors and accountability there is need for further disclosures in this regard,” Gopinath said.