India's mutual fund industry has sought the introduction of "Debt Linked Savings Scheme" (DLSS) to channelise the long-term savings of retail investors into the corporate bond market.
According to the budget recommendations by the Association of Mutual Funds in India, the government should introduce DLSS on the lines of Equity Linked Savings Scheme, (ELSS) to deepen the Indian Bond Market.
"The government's plans to significantly increase investment in the infrastructure space will require massive funding and the banks are not suited or equipped to fund such investments," AMFI said.
"If large borrowers are pushed to raise funds from the market, it will increase issuance over time and attract more investors, which will also generate liquidity in the secondary market."
It has also recommended that at least 80 per cent of the funds collected under DLSS shall be invested in debentures and bonds of companies as permitted under SEBI Mutual Fund Regulations.
"A vibrant corporate bond market is also important from an external vulnerability point of view, as dependence on local currency and markets will lower risks," the association said.
It has been further proposed that the investments up to Rs 150,000 under DLSS be eligible for tax benefit under "Chapter VI A, under a separate sub-Section and subject to a lock-in period of 5 years" (just like tax saving bank Fixed Deposits).
In the recent past, India has emerged as one of the key markets in Asia. However, the Indian corporate bond market has remained comparatively small and shallow, which continues to impede companies needing access to low-cost finance.
As per the data from Asia Securities Industry & Financial Markets Association (ASIFMA), the corporate bond markets of Malaysia, South Korea, Thailand, Singapore and China exceed that of India as a percentage of GDP.
Additionally, the responsibility of providing debt capital in India has largely rested with the banking sector. This has resulted in adverse outcomes, such as accumulation of non-performing assets of the banks, lack of discipline among large borrowers and inability of the banking sector to provide credit to small enterprises.
"Indian banks are currently in no position to expand their lending portfolios until they sort out the existing bad loans problem. Thus, there is a need for a vibrant bond market in India, to provide an alternative platform for raising debt finance and reduce dependence on the banking system," AMFI said.
IANS
