Indian bond bankers are urging regulators for more financing flexibility

Indian bankers who specialize in selling corporate bonds are asking the financial regulator for permission to lend money in exchange for bonds, people familiar with the matter said, as authorities themselves try to deepen local capital markets.The intermediaries known in India as merchant bankers say the move would give them more financial flexibility to underwrite debt issuances, the people said, asking not to be identified discussing private matters. Currently, the amount they can subscribe to is limited by their net worth, and they are not allowed to tap the bond market for this activity.

In recent meetings with the Securities and Exchange Board of India, investment bankers also sought permission to raise funds through banks, non-bank lenders and the capital markets, the people said.

These changes would allow them to better manage the bonds on their books if a debt sale fails to attract sufficient demand. It would also bring them on par with the primary dealers in the Indian government bond market, who have greater flexibility to manage such risks, they said.

The discussions underscore the challenges India faces in its bid to deepen its 58 trillion rupees ($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 high transaction costs, and most bond sales are dominated by highly rated companies.

A SEBI spokesperson did not respond to an email seeking comment.

Brokers and investment 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-oriented counterparts while framing the regulatory framework, they said.