e rit ar et in ndia 14.25
or home loans. After an asset is converted into the Indian equity market ranks among the
a marketable security, it is sold to an investor best in the world. In parallel, the government
who then receives interest and principal out of securities market has also evolved over the years
the cash flow generated from servicing of the and expanded, given the increasing borrowing
loan. Financial institutions such as NBFCs and requirements of the government. In contrast,
microfinance companies convert their loans into the corporate bond market has languished both
marketable securities and sell them to investors. in terms of market participation and structure.
This helps them get liquid cash out of assets NBCs are the main issuers and very small amounts
that otherwise would be stuck on their balance of finance are raised by companies directly. The
sheets. Economic Survey 2010–11, cites many reasons
Global experience shows that if the value of for the less-developed bond market in India—
the underlying asset falls then securitised assets (i) Predominance of banks loans;
lose value as it had happened during the US (ii) FII’s participation is limited;
‘sub-prime crisis’—home loans against which
(iii) Pensions and insurance companies
securitised assets were sold to insurance companies
and household are limited participants
and banks lost value, which in turn resulted in a
because of lack of investor confidence;
crisis. To prevent such crises, the RBI has taken
and
some precautionary steps in this regard. It has
asked companies to hold securities for a certain (iv) Crowding out by government bonds.
minimum period: The Economic Survey 2011–12 concluded15
(i) While NBFCs need to keep assets for that there is now ample empirical research to
six months, a minimum retention corroborate Schumpeter’s conjecture that financial
requirement of 5–10 per cent to ensure development facilitates real economic growth. The
that they have a continuing stake in the depth of the financial markets and availability of
performance of securitised assets. diverse products should, therefore, not be treated
(ii) Micro Finance Institutions (MFIs) need as mere adornment, but as critical ingredients of
to hold them for three months. inclusive growth.
Since it was allowed in India by the RBI, it Banks in India accounted for 14.4 per cent
has been in news – whether the ‘securitisations of the financing of large firms in 2000–01, which
trusts’ will need to pay tax on it. Meanwhile, the 15. Ministry of Finance, Economic Survey 2011–12 (New
Government in 2015 cleared the air on the issue. Delhi: Government of India, 2012), 34; quotes many
There should not be any additional income-tax if contemporary references to bring the point home –
the income distributed by the trust is received by a a). R. Rajan, and L. Zingales, ‘Financial Dependence
and Growth,’ American Economic Review, vol. 88, 1998;
person who is exempted from tax. This is expected b). S. Banerji, K. Gangopadhyay, I. Patnaik, and A, Shah,
to bring back mutual funds into the securitisation ‘New Thinking on Corporate Debt in India’, mimeo.;
market. c). C. K. G. Nair, 2012; ‘Financial Sector Reforms:
efining the Architecture, in . alhotra ed. , A Critical
Decade: Policies for India’s Development, (New Delhi:
corPorate BonD in inDia Oxford University Press, 2012) d). T. A. Bhavani, and N.
R. Bhanumurthy, Financial Access in Post-Reform India;
Economic vibrancy coupled with sophisticated e). P. Bolton, and X. Freixas, ‘How can Emerging Market
state–of–the–art financial infrastructure has conomies enefit from a Corporate ond ar et , in .
Borzenstein, K. Cowan, B. Eichengreen, and U. Panizza
contributed to rapid growth in the equity market (eds), Bond Markets in Latin America, (Massachusetts:
in India. In terms of market features and depth, MIT Press, 2008).