RBI constitutes task force on development of secondary market for corporate loans

New Delhi: Reserve Bank of India (RBI) on Thursday announced the creation of task force on the development of a secondary market for corporate loans.

“As part of the Statement on Developmental and Regulatory Policies issued along with the First Bi-monthly Monetary Policy for the year 2019-20 on April 4, 2019, it was announced that the Reserve Bank will constitute a Task Force on development of the secondary market for corporate loans”, informed RBI through a media statement.

The composition of the Task Force will have five members and one Chairperson. TN Manoharan, Chairman of Canara Bank will be the chairman of the task force.

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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 formalized mechanism has been developed to deepen the market.

A vibrant, deep and liquid secondary market for debt would go a long way in increasing the efficiencies of the debt market in general and would aid in the resolution of stressed assets in particular. A well-developed secondary market for debt would also aid in transparent price discovery of the inherent riskiness of the debt being traded.

Additionally, such price discovery would spur innovations in the securitization market as well as invigorate dormant markets such as corporate credit default swaps (CDS).

These would, in turn, provide with early warning signals regarding the riskiness of the debt being held by the banks which would incentivize improving the underwriting and origination standards.


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