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New Delhi, May 31 (KNN) The Reserve Bank of India (RBI) has constituted a task force on development of secondary market for corporate loans, a field which is currently restricted to sale to asset reconstruction companies and ad hoc sale to other lenders including banks, and no formalized mechanism has been developed to deepen it.

The six-member task force will have T. N. Manoharan, Chairman of Canara Bank, as its Chairperson and will submit its report by the end of August 2019.

“The terms of reference of the task force would include review of the existing state of the market for loan sale or transfer in India as well as the international experience in loan trading,” said RBI.

Further the task force will be required to make recommendations on the required policy or regulatory interventions for facilitating development of secondary market in corporate loans, including loan transaction platform for stressed assets.

The central bank said, "A vibrant, deep and liquid secondary market for debt would go a long way in increasing the efficiencies of the debt market in general and would aid in resolution of stressed assets in particular.”

A well-developed secondary market for debt would aid in transparent price discovery of the inherent riskiness of the debt being traded, it said.

Also, the RBI said that such price discovery would spur innovations in the securitization market as well as invigorate dormant markets such as corporate credit default swaps (CDS).

It added that these would in turn provide with early warning signals regarding the riskiness of the debt being held by the banks which would incentivize improving the underwriting and origination standards.