In order to develop the secondary market for corporate loans, a taskforce was constituted by the Reserve Bank of India (RBI) that has recommended a slew of measures that includes participants such as mutual funds, insurers and pension funds.
The report was submitted to RBI Governor Shaktikanta Das. The committee has recommended the setting up of a self-regulatory body of participants to finalise details for the secondary market for corporate loans, including the standardisation of documents.
The six-member taskforce was constituted under the stewardship of TN Manoharan, Chairman, Canara Bank. The taskforce made many important recommendations and few important among all are: amending the provisions for securitisation and assignment of loans, asset reconstruction, foreign portfolio investment, and external commercial borrowings.
It has also recommended for amending regulations of Securities Exchange Board Of India, Insurance Regulatory and Development Authority and Pension Fund Regulatory and Development Authority to enable participation of non-banking entities such as mutual funds, insurance companies, and pension funds.
“Internationally, secondary loan market is utilised by diverse and vast number of participants, including investment banks, commercial banks, hedge funds, pension funds, mutual funds, insurance companies, private equity funds, and specialist loan brokers,” the report stated.
Taking cognisance of the fact that banks and NBFCs are currently the only participants in the primary and secondary loan markets, the taskforce emphasized on the fact that it is essential to widen the spectrum of participants to boost the secondary market.
The taskforce also recommended for establishing a Central Loan Contract Registry, as well as an online loan sales platform to conduct auctions and sale of such loans.
The taskforce was set up in May this year as the secondary loan market in India is largely restricted to sale to Asset Reconstruction Companies and ad-hoc sale to other lenders, including banks, and no formalised mechanism has been developed to deepen the market.
The RBI has sought public comments on the report by September 30.