The Indian Express editorial with vocab -Wider, deeper

Measures to open up corporate bond market are timely. RBI and Sebi must push hard to make it work

The Reserve Bank of India has announced a series of measures aimed at widening and
deepening India’s corporate bond market. The growth of this market has been relatively stunted compared to other segments of the financial markets despite the opening up of the economy and the financial sector over the last couple of decades. The latest initiative comes at the fag end of Governor Raghuram Rajan’s term — brokers being allowed to participate in corporate bond repurchases or repos, making corporate bonds eligible for borrowing from the central bank, allowing foreign portfolio investors to trade directly in corporate bonds besides allowing banks to issue rupee bonds or masala bonds, as they are dubbed in the overseas markets, to bolster their core capital and to fund infrastructure and affordable housing. The new policy measures also aim to cap the exposure of banks to corporates in the medium term, to progressively nudge (push) Indian companies to raise more capital from the bond market rather than leaning heavily on local lenders. Most of these steps are positive and have been on the agenda of policymakers in the past. Yet, given the history and track record of the growth of the Indian bond market over the last 20 years, there is bound to be scepticism (doubt) regarding the latest move.

That’s because, in this period, India’s equity markets have surged (move suddenly) — in terms of volumes, participation of foreign and local investors and depth. Similarily, the government securities market, though accessed mainly by institutional investors, overshadows the corporate bond market, thus exposing the shallow local corporate bond market compared to the experience globally. That’s because for long India has been a bank dominated financial market, with an overwhelming dependence of firms and large business groups on funding from banks. India’s policymakers appear to have finally recognised the huge risks posed by this — in the form of battered (having suffered repeated) balance sheets of many Indian banks, especially state-owned lenders whose exposure to many long-term infrastructure projects of large business houses has come to haunt them and the government and the regulator. It is in this context that the move to nudge them to tap the bond market to raise funds by capping the exposure of banks and through higher provisioning when lending to corporates by 2019 is extremely important. But that will also pose a set of challenges in terms of banks identifying and funding a more diversified set of borrowers, especially small and medium entrepreneurs, instead of taking recourse to building their loan book through big ticket loans.

There is much at stake this time in the development of India’s bond markets as the old development financial institutions which funded several large projects for over four decades have withered away. With Indian banks weighed down partly because of mismatches in lending to long-term projects out of short-term resources, both the RBI and Sebi need to make it work this time to lower and diversify the risks for these lenders and to provide an efficient alternative of finance for borrowers. A vibrant corporate bond market is also important from an external vulnerability point of view, as a dependence on local currency and markets will lower risks. It could also be an opportune time to encourage long-term institutional investors such as pension and provident funds to step in with safeguards to provide the needed boost to the market and to acquire matching long-term financial assets from a liquid bond market. Former US Federal Reserve Chief Alan Greenspan had said that corporate bond markets could act as a spare tire. For that, both the RBI and Sebi will have to push much harder.

1.       widen make or become wider.

synonyms:

broaden, make/become wider, open up, open out, spread, expand, extend, enlarge,stretch

2.    Fag End - a cigarette end.

·         the last part of something, especially when regarded as less important or interesting.

3.     Bolster - support or strengthen

synonyms:

strengthen, support, reinforce, make stronger, boost, fortify

4.     Shallow - not exhibiting, requiring, or capable of serious thought.

synonyms:

superficial, facile, glib, simplistic, oversimplified, schematic, slight,  flimsy,insubstantial, lightweight, empty, trivial, trifling;

5.     Diversify - enlarge or vary the range of products or the field of operation of (a company).

6.     Wither - fall into decay or decline

synonyms:

diminish, dwindle, shrink, lessen, fade, ebb (away), wane, weaken, languish