The RBI, in important initiatives, has three committees and a working group with the aim to develop the domestic capital markets further, while to boost derivatives markets, efforts are required in encouraging better risk management by domestic institutions, especially banks, outgoing RBI Deputy Governor Viral Acharya has said.
"With the untapped interest rate derivatives market set for a pickup in the risk management activity of banks and non-banks, the role of complementary markets will strengthen in the years to follow.
"Important initiatives are underway to develop Indian capital markets further," he said in his address "Development of Viable Capital Markets - The Indian Experience" at the Indian School of Business, Hyderabad, on last Saturday.
"Capital markets play a crucial role in the economic development of a country. They provide financial resources required for the long-term sustainable development of the economy. Development of viable capital markets is therefore considered an important element in the macro-financial policy toolkit, including for objectives such as financial stability and the transmission of monetary policy," he said.
Mr Acharya said there are also efforts to boost developing complementary markets.
Deep and liquid complementary markets like repo and derivatives play a crucial role in the growth of the cash markets as they help investors in funding and hedging, he said, noting that, over the past few years, the central bank has taken measures to help develop repo markets for both government securities (G-Secs) and corporate bonds.
Introduction of tri-party repo (August 2017) has been a success for the G-Sec market, but however, tri-party repo is yet to pick up in the corporate bond market, he said.
Similarly, securities lending ("market repo") works well for G-Secs although wider participation (especially by large holders of G-Secs like mutual funds, insurance companies and pension funds) is required to avoid occasional episodes of excessive volatility in borrowing costs.
All these regulatory measures have resulted in a consistent growth in liquidity in the repo markets, he said in his speech.
Mr Acharya listed the RBI's three Task Forces and a working group engaged in the process.
He said that a task force on offshore rupee markets was set up in February this year to examine in depth issues relating to these markets and recommend appropriate policy measures to align incentives for non-residents to gradually move to the domestic market for their hedging requirements and also to ensure stability of the external value of the rupee.
Its report is due by mid-July 2019, he said.
The RBI also set up an internal working group on market timings which will comprehensively review the timings of various markets that are under the central bank's purview, and will assess the necessary payment and settlement infrastructure that can support co-ordinated timings across them.
Its report, after submission, will be released for public feedback.
The task force on the development of secondary market for corporate loans will suggest required policies for facilitating the development of such a market, including a loan transaction platform for stressed assets, creation of a loan contract registry, its ownership structure and related protocols such as the standardisation of loan information, independent validation and data access.
Its report is due by the end of August.
The committee on the development of housing finance securitisation market, was set up to assess the state of housing finance securitisation markets in India, study the best international practices as well as lessons learnt from the global financial crisis, and propose measures to further develop these markets in India by identifying critical steps required such as, inter alia, definition of conforming mortgages, mortgage documentation standards, digital registry for ease of due diligence and verification by investors, avenues for trading in securitised assets, etc.
The committee's report is also due by the end of August.