To make the debt market more vibrant, long-term liabilities with the insurance and pension sector need to be channelised effectively wherein they can be allowed to invest in low-rated instruments instead of just AAA and AA paper, said Dinesh Kumar Khara, Chairman, State Bank of India (SBI).
Speaking at the CII Partnership Summit, Khara said, "As of now, they are only into AAA and AA papers. But I think these funds can be made available to low-grade papers also. This is perhaps the need of the hour if we want to create infrastructure. We have to ensure this money flows into infrastructure, which we have seen happen across the globe."
Insurers generally invest in government securities and high-rated paper. Irdai does not allow investment in low-rated instruments. The top private insurers have more than 90 per cent of their debt investment in government securities and AAA-rated securities. However, there is growing clamour to allow them to invest in below AA papers.
“With the kind of requirement that the economy has in terms of infrastructure investments, we have to open up the capital markets space and encourage more and more foreign participation. We have started some kind of foreign participation in the current year,” Khara added.
Commenting on the need for a Development Financial Institution (DFI) in India, Khara said, even if a DFI comes in, the source of funds will have to be more international in colour as compared to what it used to be earlier, when they were getting money from the government or the government agencies.
“All this while, the domestic market and household savings were the major source of savings in the economy. That kind of savings may not be enough for the growth trajectory we have chalked out for ourselves”, he added.
Experts also suggested that a regulatory body can be created which will have members from Securities and Exchange Board of India (Sebi), Reserve Bank of India (RBI), Insurance Regulatory and Development Authority of India (Irdai), and Pension Fund Regulatory and Development Authority (PFRDA), and any large regulatory body which is concerning investments in the country. And, authority should be given to this body to take decisions regarding innovation in capital markets.
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