Scribd Logo
Upload

Welcome to Scribd!

  • 176 views

    Govt Securities Market

    Uploaded by

    Rohit Bhardwaj
    The document summarizes the development of local currency bond markets in India, with a focus on the central government bond market, state government bond market, and corporate bond market. It describes the institutional arrangements between the Reserve Bank of India and central/state governments. It outlines the phases of reforms in the central government bond market since the early 1990s that increased market liquidity and efficiency. Similar fiscal reforms were undertaken for state governments. While progress has been made, the corporate bond market in India remains underdeveloped compared to government bond markets.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd

    Govt Securities Market

    Uploaded by

    Rohit Bhardwaj
    176 views33 pages
    The document summarizes the development of local currency bond markets in India, with a focus on the central government bond market, state government bond market, and corporate bond market. It describes the institutional arrangements between the Reserve Bank of India and central/state governments. It outlines the phases of reforms in the central government bond market since the early 1990s that increased market liquidity and efficiency. Similar fiscal reforms were undertaken for state governments. While progress has been made, the corporate bond market in India remains underdeveloped compared to government bond markets.

    Original Description:

    presentation on market in india

    Original Title

    govt securities market.ppt

    Copyright

    © Attribution Non-Commercial (BY-NC)

    Available Formats

    PPT, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document summarizes the development of local currency bond markets in India, with a focus on the central government bond market, state government bond market, and corporate bond market. It describes the institutional arrangements between the Reserve Bank of India and central/state governments. It outlines the phases of reforms in the central government bond market since the early 1990s that increased market liquidity and efficiency. Similar fiscal reforms were undertaken for state governments. While progress has been made, the corporate bond market in India remains underdeveloped compared to government bond markets.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    176 views33 pages

    Govt Securities Market

    Uploaded by

    Rohit Bhardwaj
    The document summarizes the development of local currency bond markets in India, with a focus on the central government bond market, state government bond market, and corporate bond market. It describes the institutional arrangements between the Reserve Bank of India and central/state governments. It outlines the phases of reforms in the central government bond market since the early 1990s that increased market liquidity and efficiency. Similar fiscal reforms were undertaken for state governments. While progress has been made, the corporate bond market in India remains underdeveloped compared to government bond markets.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 33

    Development of Local Currency Bond Markets: The Indian Experience

    Shyamala Gopinath Reserve Bank of India


    March 6-7, 2007 London

    Outline of Presentation
    Structure of Bond Markets in India Institutional Arrangements with RBI Central Government
    Trends in Budget Deficits and Debt Fiscal and Debt Market Reforms Impact of Reforms on the Debt Market Measures to Deal with External Account Pressures

    State Governments
    Trends in Budget Deficits and Debt Fiscal and Debt Market Reforms Issues in Development of State Government Securities

    Corporate Bond Market The Way Ahead

    Structure of Bond Markets in India


    Central Government Securities State Government Securities Corporate Bond Market Securitised Debt

    Institutional Arrangements with RBI


    Banker and Debt Manager to Central
    Government by Statute

    Banker to 26 State Governments and Debt

    Manager to 28 State Governments by Voluntary Agreements

    Central Government

    Trends in Centres Budget Deficit


    Three Phases
    1991-92 to 1996-97: Sharp Fiscal Correction 1997-98 to 2001-02: Deterioration 2002-03 onwards: Fiscal Correction Resumed
    1990- 1991- 1995- 2000- 2001- 2002- 2003- 2004- 2005- 200691 92 96 01 02 03 04 05 06 07 (RE) (BE) 7.85 5.56 5.07 5.64 6.18 5.92 4.47 4.01 4.14 3.76

    Gross Fiscal Deficit Revenue Deficit Gross Primary Deficit

    3.26 4.07

    2.49 1.49

    2.50 0.86

    4.01 0.93

    4.39 1.47

    4.40 1.11

    3.56 -0.03

    2.51 -0.06

    2.60 0.46

    2.14 0.22

    Financing Pattern of Centres Gross Fiscal Deficit


    Low Share of External Borrowings Substantial Increase in Share of Domestic
    Open Market Borrowings

    External Finance Market Borrowing Others Borrowing

    1990- 1991- 1995- 2000- 2001- 2002- 2003- 2004- 2005- 200691 92 96 01 02 03 04 05 06 07 (RE) (BE) 7.1 14.9 0.5 6.3 4.0 -8.2 -10.9 11.8 5.1 5.6

    17.9

    20.7

    56.4

    61.8

    64.4

    71.8

    72.1

    40.7

    69.2

    76.5

    49.5

    45.5

    26.8

    32.9

    32.7

    35.2

    42.0

    54.0

    15.4

    17.9

    Trends in Government Debt-GDP Ratio


    Similar to the Trends in Budget Deficit
    90 80 70 60 50 40 30 20 10 0 1980-81 1990-91 1996-97 2000-01 2004.05 2006-07 (BE)

    Per cent

    Centre

    States

    Total

    Centres Fiscal Responsibility Act


    Enactment of FRBM Act : August 26, 2003 Came into force from July 5, 2004 Elimination of RD by 2008-09 (3.6% in 2003-04)

    and revenue surplus thereafter Containment of GFD to 3 % of GDP by 2008-09 (4.5% in 2003-04) RD and GFD placed at 2.0% and 3.7% of GDP in 2006-07 (RE) RD and GFD budgeted to decline to 1.5% and 3.3% of GDP in 2007-08 RBI prohibited from Participation in Primary Issuances of G-Secs

    Central G-Sec Market: Pre-Reform Period


    Features
    Administered and Low Interest Rates High Statutory Liquidity Ratio (SLR) Automatic Monetisation of Budget Deficit High Cash Reserve Ratio (CRR)

    Impact
    Preemption of Financial Savings No possibility of Price Discovery Dormant Debt Market

    Reforms in the Central G-Sec Market


    Three Phases First Phase (1992-95)
    Creation of Enabling Environment Elimination of Automatic Monetisation Introduction of Auctions SLR reduced
    Institutional Development DvP Primary Dealers FIMMDA and PDAI Instrument Diversification Floating Rate Bonds Capital Indexed Bonds

    Second Phase (1995-2000)

    Reforms in the Central G-Sec Market (Contd)


    Third Phase
    Enhance Liquidity and Efficiency Indicative Auction Calendar Non-Competitive Bidding Facility Liquidity Adjustment Facility Repo and collateralised borrowing lending system Negotiated Dealing System (NDS), STP and CCP Interest Rate derivatives Market Stabilisation Scheme Foreign investment in local currency debt instruments Conversion of special securities into marketable debt

    Reforms in the Central G-Sec Market (Concld)


    Reforms undertaken in the context of FRBM Act
    Functional Separation of Debt and Monetary Management: Creation of FMD Extension of PD business to Banks Revised Scheme of Underwriting by PDs: 100% Underwriting by PDs NDS-OM Short-Sale When Issued market Considering Active Consolidation

    Snapshot of the Central G-Sec Market


    Increase in Stock and Turnover
    Outstanding stock (Rs. in billion) Outstanding stock as ratio of GDP (per cent) Turnover / GDP (per cent) Average maturity of the securities issued during the year (in Years) Weighted average cost of the securities issued during the year (Per cent) Minimum and maximum maturities of stock issued during the year (in Years) 1992 769 14.68 --11.78 N.A. 1996 1375 14.2 34.21 5.7 13.77 2-10 2002 5363 27.89 157.68 14.3 9.44 5-25 2003 6739 27.29 202.88 13.8 7.34 7-30 2004
    8,243 29.87 217.3 14.94

    2005
    8,953 28.69 239.9 14.13

    2006
    9,767 27.67 212.9 16.9

    5.71 4-30

    6.11 5-30

    7.34 5-30

    Elongation of Maturity Profile General Reduction in Weighted Average Yield


    18 16 14
    Per cent / Years

    Maturity and Yield

    12 10 8 6 4 2 0
    1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06

    Weighted Average Yield (per cent)

    Weighted Average Maturity (years)

    Yield Curve
    Development of a Smooth Yield Curve
    16 14 12 10 8 6 4 2 0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 Maturity (Years) Mar-97 Mar-04 Jan-07

    Per cent

    Ownership Pattern of Central G-Secs


    More Diversification
    Chart 5: Ownership Pattern of Central G-Secs: 1991
    Reserve B ank o f Ind ia (o wn acco unt )

    0% 5% 1% 0% 13% 25%

    Co mmercial B anks Lif e Insurance Co rp o rat io n o f Ind ia # Unit Trust o f Ind ia NA B A RD Emp lo yees Pro vid ent Fund Scheme Co al M ines Pro vid ent Fund Scheme Primary d ealers

    56%
    Ot hers

    0% 0% 2% 0% 0%

    Chart 6: Ownership Pattern of Central G-Secs: 2005


    16% 7%

    Res erve Bank of India (own account) Com m ercial Banks Life Ins urance Corporation of India # Unit Trus t of India NABARD

    20% 53%

    Em ployees Provident Fund Schem e Coal Mines Provident Fund Schem e Prim ary dealers Others

    External Borrowings
    Low Share of External Debt External Borrowings only from Multilateral
    and Bilateral Sources
    100.0 80.0

    Per cent

    60.0 40.0 20.0 0.0 1950-51 1980-81 1990-91 2000-01 2006-07 (BE) Domestic Liabilities External Liabilities

    Measures to Deal with External Account Pressures


    India Development Bonds (IDBs) (1991):
    US$1.6 billion Resurgent India Bonds (RIBs) (1998): US$4.2 billion India Millennium Deposits (IMDs) (2000): US$5.5 billion

    Original Sin?
    India
    Low Share of External Liabilities in Sovereign Borrowing Sovereign Borrowings only from Multilateral/Bilateral Sources States not permitted to raise external debt directly Foreign investment allowed in locaL currency bonds but within an overall ceiling pros and cons of sovereign foreign currency borrowing Rationale for calibrating foreign investment in domestic currency bonds

    Issues

    Indias External Debt


    Cautious approach Sovereign, corporates, financial

    intermediaries Total External debt $132 bn as at end Sept 2006 Long-term debt $126 bn Rise in external debt ECBs, NRI, shortterm

    State Governments

    Trends in Budget Deficit


    Strong Improvement since early part of this
    decade Build up of Surplus Cash Balance in Recent Years: Buyback of Securities by some States
    1990- 1991- 1995- 2000- 2001- 2002- 2003- 2004- 2005- 200691 92 96 01 02 03 04 05 06 07 (RE) (BE) 3.3 2.89 2.65 4.25 4.21 4.17 4.46 3.5 3.23 2.68 0.93 1.78 0.87 1.22 0.69 0.8 2.54 2.59 2.25 2.22 1.17 0.49 0.05

    GFD Revenue Deficit Gross Primary Deficit

    0.09 -0.15 -0.61 -0.75 -1.65 -2.03 -2.47

    Financing Pattern of Fiscal Deficit


    Share of Central Loans has reduced Share of Market Loans has increased since
    early 1990s NSSF continues to predominate
    Loan From Central Gov. Market Borrowing NSSF Others 33.3

    1990- 1991- 1995- 2000- 2001- 2002- 2003- 2004- 2005- 200691 92 96 01 02 03 04 05 06 07 (RE) (BE) 53.1 49.6 47.1 9.4 11.4 -0.9 11.5 -15.1 2.3 4.8

    12.0

    17.5

    18.7

    14.0

    18.0

    27.9

    38.4

    30.1

    15.7

    21.0

    32.9

    34.2

    36.4 40.2

    37.1 33.5

    51.2 21.9

    16.9 33.2

    66.5 18.5

    65.0 17.0

    53.5 20.7

    Fiscal Reforms
    Twelfth Finance Commission
    Fiscal Restructuring Plan: Fiscal Discipline Incentivised Enactment of FRL through Debt Consolidation and Relief Facility (DCRF) Financial Disintermediation by Centre

    Experience
    FRL Enactment 24 States RD to be nearly eliminated and GFD-GDP ratio to decline to 2.7% in 2006-07

    Market Borrowings of State Governments


    Till 1998-99: Tap Issuances States encouraged to adopt auction route:
    100 % of market borrowing in 2006-07 so far as against 48.5% in 2005-06 and 2% in 200405 conducted through auctions

    Auction calendar proposed to be issued by


    States

    State Government Securities - issues


    Negligible Secondary Market Liquidity
    Low level of outstanding stock Predominance of buy-and-hold investors Disconnect between the uniform coupon fixed in tap issues and secondary market yield Fragmentation across issuers and securities

    Proposed Measures
    Non-competitive bidding Issuance calendar Use for Liquidity adjustment facility

    Corporate Bond Market

    Corporate Bond Market


    Corporate Bond markets historically late to

    develop Access to bank credit Access to external sources of finance Require well developed accounting legal and regulatory systems Rating agencies Rigorous disclosure standards and effective governance of corporations Payment and settlement systems Secondary markets

    Reforms in Corporate Bond Market


    Four Rating agencies operating in India De-materialisation and electronic transfer

    of securities Initial focus reform of private placement market by encouraging rating of issues Further reforms needed Appointment of a High Powered Committee

    High-powered committee recom


    Enhance the issuer base and investor base including

    measures to bring in retail investors Listing of primary issues and creation of a centralized database of primary issues Electronic trading system Comprehensive automated trade reporting system Safe and efficient clearing and settlement standards Repo in corporate bonds Promote credit enhancement Specialized debt funds to fund infrastructure projects Development of a municipal bond market

    The Way Ahead


    Build upon the Strong Macroeconomic
    Performance
    Adherence to FRL Stability of Inflation Rate -external debt management policy Pension reforms

    Active Consolidation Floating Rate Bonds and Inflation-Indexed Bonds STRIPS Corporate Bonds
    Bond Insurance Institutions Institutional Investors: Credit Enhancers Securitised paper to be traded on exchanges

    You might also like