India’s bond bankers push SEBI for more funding flexibility

Currently, the amount they can underwrite is limited by their net worth, and they are barred from tapping the bond market for this activity

• Merchant bankers seek SEBI nod to borrow funds against bonds
• They want more flexibility to underwrite corporate debt issuances
• Brokers also request an anonymous trading platform for bonds

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Indian bankers that specialize in selling corporate debt securities are asking the financial regulator for permission to borrow funds against bonds, according to people familiar with the matter, as authorities themselves seek to deepen local capital markets.

The intermediaries known as merchant bankers in India say the move would give them more financial flexibility to underwrite debt issuances, the people said, asking not to be named discussing private matters. Currently, the amount they can underwrite is limited by their net worth, and they are barred from tapping the bond market for this activity.

In recent meetings with the Securities and Exchange Board of India, merchant bankers also sought approval to raise funds via banks, non-banking financiers and the capital markets, the people said.

These changes would enable them to better manage bonds on their books if a debt sale fails to draw sufficient demand. It would also bring them on par with primary dealers in India’s sovereign bond market, who have greater flexibility to manage such risks, they said.

The discussions underscore the challenges India faces in its push to deepen its 58-trillion-rupee ($638 billion) corporate bond market, which is crucial to support the country’s growing infrastructure financing needs. The market is plagued by low liquidity and elevated transaction costs, and most bond sales are dominated by highly-rated companies.

A spokesperson for SEBI didn’t respond to an email seeking comment.

Brokers and merchant bankers have also asked the regulator for an anonymous trading platform for corporate bonds, which they say would help improve price discovery, the people said. They have urged SEBI to treat debt merchant bankers separately from their equity-focused counterparts when drawing up the regulatory framework, they said.