Reddy for reform

Reform of India''s debt market may be cautious, but in the last three years, the results have been dramatic, says Dr. YV Reddy of the Reserve Bank of India.

India's local debt markets are in the midst of a slow but forceful reform process, according to Dr YV Reddy, Deputy Governor of the Reserve Bank of India, who was giving the keynote address at the FinanceAsia 4th annual Asian Debt Conference in Hong Kong.

Dr Reddy acknowledged that India was as keen as the rest of Asia to develop itsálocal debt markets. "There is an increasing awareness of the importance of the local debt markets in Asia," he said. He then pointed out that the role of the Reserve Bank of India as a central bank was to regulate, reform and reinvigorate those markets. "The challenge in India is to create the mechanisms by which we encourage the development of the debt markets," he said. "It is about how we craft the rules."

Dr Reddy then went on to describe the process of reform which the RBI was undertaking. He characterized the reform of local debt market as "cautious" and stressed that debt market reform was being undertaken within the overall context of monetary and foreign exchange market reform.

The cautious approach was seen in the way reforms were being phased into the market as opposed to the Big Bang approach of some other countries. Nevertheless, he stressed that the process was transparent and collaborative in that the views and wishes of all the stakeholders in India's debt markets were canvassed and understood. These include investors, other regulatory bodies, issuers, international bodies and the general public. "Consultancy and transparency are at the core of the debt market reform process," he said.

The history of the Indian debt markets since 1997 can be best described as a process of reducing government dominance and control of the market. While the government still has the vast majority of debt issues outstanding in the market, it is increasing the options available for investors. This includes varying the types of government issues to include zero coupon bonds, floaters, long-maturity bonds and put option bonds. It is also reducing its issuing programme to allow more corporate issuers to access the markets.

There have been significant developments to increase the efficiency of the primary and secondary markets, including quicker dematerialization of the bond market and the implementation of a real-time gross settlement system in the coming year. These initiatives have resulted in a 55% average annual growth of the secondary market volume in India since 1994.

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