National markets regulator Securities and Exchange Board of India (Sebi) is working on a framework to encourage more exchange-traded funds that are linked to the corporate bond market in India, said whole-time director Ananta Barua at an Association Chambers of Commerce and Industry of India (Assocham) event on May 12.
“If there is more liquidity in the debt ETF market, it will help the underlying bonds,” Barua said. India has one major ETF based on corporate bonds, which is Bharat Bond ETF.
Barua said Sebi, in partnership with the finance ministry, is working on finalising the modalities of the corporate bond market backstop facility. The government in the Union Budget 2021-22 had announced the creation of a backstop facility for the corporate bond market, which will further aid its development.
Under this, a ‘backstop facility’ will purchase investment-grade corporate bonds during normal and stressed times in the market to ensure that liquidity remains deep. The Indian corporate bond market has been hindered by evaporation of liquidity in times of market stress as was witnessed in the aftermath of the collapse of Infrastructure Leasing & Financial Services (IL&FS) in 2018.
During the period of financial stress such as 2020, 2018 and 2008, the corporate bonds market has seen a sharp decline in buying activity, which leads to sellers offering heavy discounts to offload securities.
Barua said the backstop facility will build investors’ confidence in the secondary corporate bond market.“Sebi has a role of regulator and development (in the corporate bond market), so we also have to repay our debt,” Barua said.