State Bank of India (SBI), the nation’s largest commercial bank, on Wednesday emphasised the critical role of pension funds, insurance companies, and mutual funds in enhancing liquidity in India’s corporate bond market. Their active participation is essential to deepen the corporate bond market and bolster infrastructure financing, CS Setty, Chairman, SBI has said.

“If household savings and corporate savings are finding ways to pension, insurance and MF investment categories, it is also important that the pension funds, MFs and insurance companies actively participate in the corporate bond markets. I don’t see that kind of active participation coming in,” Setty said in New Delhi. 

He was addressing a session on “Financing Future Growth” at the Global Economic Forum (GEPF), jointly organised by the Finance Ministry and Confederation of Indian Industry (CII). 

Setty highlighted that even if the Pension Funds, MFs and Insurance companies are coming in, they are making investments only in AAA bonds. “That is not going to help deepen the corporate bond markets,” he said. 

He highlighted that SBI is the largest issuer of corporate bonds and has issued bonds worth ₹ 50,000 crore this year. The SBI Chairman noted that commercial banks could support infrastructure financing only up to a point because of asset liability mismatch (ALM) issues that impedes their ability to fund long gestation projects.

In talks with RBI

Setty also said that SBI is in talks with RBI on revising held to maturity (HTM) norms for corporate bonds with regards to banks. Although RBI had enabled banks to put corporate bonds in HTM category, SBI had priority sector obligations on that even if it is placed under HTM, he noted.

“This is going to put pressure on us. We need to really think how to deepen the corporate bond markets,” he added.

While noting that savers becoming investors is good for the economy, he pointed out that much of this is going into equity markets through mutual funds, pension funds and insurance funds.

“We have been debating about the depth of the corporate bond markets for so many years and we could never achieve that depth. Somewhere, corporate bond market has to come into financing of infrastructure as well as balance sheet funding of corporates,” Setty added.

Rajiv Memani, President Designate -CII and Chairman EY India said, “While India’s growth over the last 30 years has largely been funded by domestic savings, going forward a deeper corporate bond market can play a significant role in financing infrastructure development in the private sector and provide debt for capital-intensive manufacturing.”

It requires availability of both good quality paper on the demand side and a larger pool of investors on the supply side, he said. “Like in the US, insurance and pension funds in India could deploy greater capital in corporate bonds for consistent long-term returns. Further, global funds can be another pool of capital for the Indian bond markets,” Memani said.