Foreign swaps risky for Indian mkts: FM

Published on Fri, Mar 28, 2008 at 12:49 | Updated at Mon, Mar 31, 2008 at 09:48 | Source : CNBC-TV18

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Finance Minister, P Chidambaram has said that Forex swaps are risky and the the markets had witnessed turbulence in last few months. Speaking at a press conference in Mumbai today, he said that there is no need for very complex financial products in India.

"I think the need for the product must be well established before the product is sold. There is no need to introduce in this country extremely complex and extremely risky products when that is not the preferred matter of either raising money or offering avenues to investors. We are still at a very early stage of development and therefore only such products which are justified by the requirements of the economy must be sold may be after 10 -15 years as the economy deepens, becomes stronger there is a place for very complex products."

On bond market, he said "We must remember always that the quality of the market is affected by the behaviour of the players to achieve corporate objectives, the perception of their risk and their culture of risk taking. I ask all of you to work with the government in expanding, broadening and deepening the corporate bond market."

He said that an investment of USD 500 billion is needed for infrastructure until 2012. He emphasised on corporate bonds, saying they will play a key role in the economy. "It’s really Pro Bono for the investor; it’s not Pro Bono for the issuer, so the issuer should really be carefully in offering products in the markets. But I think that is important that every instrument that comes on a market will be rated and investors must learn to make the best of such of it. I’m confident in that agencies like Crisil will through their Pro Bono and other measures will be supportive of the government in trying to open up and liberalize the financial markets."

The government is looking at introducing repos in the corporate bond market. He expressed concern over some large cap companies that have wanted to de-list.

He said he is pushing Sebi and RBI to speed up in developing corporate bonds.

Excerpts from the press conference:

Q: The urgency with which this has to happen and what are the steps we can help you with and what you can help us with in terms of making it happen quicker, because so far the intension has been very good over the last three-four-five years, but the speed has left something to be desired?

A: Speed is a very relative term. As I said we have taken a number of steps based on the RH Patil Committee recommendations; we are in the process of taking many more measures, Sebi has moved forward with a discussion paper, RBI is on board, we have taken an important step in the Budget by withdrawing TDS from corporate bonds; repos on corporate bonds is waiting to happen and I hope it will happen sooner than later.

To me, this is more or less a satisfactory speed. I respect your view that we are moving at a glacial pace but surely there is movement forward. We just saw a bid and an offer being matched, this has the blessings of Sebi as well as the NSE; this trade has been reported on NSE and I think we can look forward to quicker implementation of the Patil Committee recommendations in the next few months. We are pushing Sebi and RBI to move forward quickly, but you must understand that these are independent regulators who have to make their judgements.

Q: I want to ask a question on behalf of the corporate sector - What in your view are the preparatory efforts that will be necessary, which they will have to do to make sure that they can take the benefit of the expansion of the financial markets in a way that you portray, particularly given the fact that good governance would require very strong controls over the extent to which leverage is actually used?

A: Who am I to advice corporates what they should do. The point is I would like corporates to be listed on the stock market to raise money in the securities market.