• Mobile Menu
HOME BUY COURSES
LOG IN SIGN UP

Sign-Up IcanDon't Have an Account?


SIGN UP

 

Login Icon

Have an Account?


LOG IN
 

or
By clicking on Register, you are agreeing to our Terms & Conditions.
 
 
 

or
 
 




RBI constitutes task force on secondary market for corporate loans

Fri 31 May, 2019

Recently Reserve Bank of India has constituted a six-member committee headed by Canara Bank chairman T. N. Manoharan on Development of Housing Finance Securitisation Market to review the existing state of mortgage securitisation in India and various issues constraining market development, and to develop the market further.

Need

  • Mortgage securitisation market in India is primarily dominated by direct assignments among a limited set of market participants on account of various structural factors impacting demand and the supply sides, as well as certain prudential, legal, tax and accounting issues.
  • Globally, there is a healthy corporate loan market where banks can sell their stressed assets and those assets get traded. But in India banks sell their stressed loans to Asset Reconstruction Companies (ARC's) and sometimes ad hoc sale to other lenders (banks) but practically there is no other alternative to this and no formalised mechanism. Therefore-
  • A vibrant, deep and liquid secondary market for debt would increase efficiencies of debt market in general and would aid in resolution of stressed assets.
  • A well-developed secondary market for debt will aid in transparent price discovery of inherent riskiness of debt being traded.

Function of Task Force

  • The task force would design market structure for loan sales and auctions which will also include online platforms and other related trading and transaction reporting infrastructures.
  • It will suggest how participation can be enhanced in market and will also give suggestions on need for, and role of, third party intermediaries, like market makers, servicers, arrangers, etc.

Secondary Market

  • The secondary market is where securities are traded after the company has sold its offering on the primary market. It is also referred to as the stock market. Example: BSE, NSE etc.
  • Anyone can purchase securities on the secondary market as long as they are willing to pay the asking price per share.A broker typically purchases the securities on behalf of an investor in the secondary market.
  • The secondary market has further two components. First, the spot market where securities are traded for immediate delivery and payment. The other is forward market where the securities are traded for future delivery and payment.