RBI task force calls for central corporate loan contract registry

Reserve Bank of India

The Reserve Bank-constituted task-force on developing a vibrant secondary market for corporate loans has called for setting up a central loan contract registry to remove information asymmetries between buyers and sellers.

The six-member task force, headed by Canara Bank chairman TN Manoharan, was formed to examine the scope for developing a secondary market for corporate loans and make recommendations to facilitate rapid development of such a vibrant market.

The task force submitted the report to governor Shaktikanta Das Tuesday.

The task force has called for "creating a loan contract registry to remove information asymmetries between buyers and sellers, its ownership structure and related protocols such as standardization of loan information, independent validation and data access".

It also suggests creation of a self-regulatory body of the participants that can finalise detailed operational modalities of such a secondary market, including standardization of the documentation process.

The report also recommends setting up of an online loan sales platform to conduct auctions/sale process of secondary market loans.

It further calls for virtual information sharing with various repositories to facilitate transactions and development of a suitable/appropriate menu of benchmark rates to be commissioned by the self-regulatory body along with Financial Benchmarks India Pvt Ltd.

Other recommendations include amending the provision of clarifications with respect to securitization, asset reconstruction, foreign portfolio investors and ECBs.

Amending the Sebi, Irdai and Pfrda regulations can broad-base the market with effective participation of non- banking entities such as mutual funds, insurance firms and pension funds, it says.

The task force also notes that the secondary market for loans has not evolved to the scale of its potential because absence of a systematic loan sales platform, lack of standardization in documentation and legal factors.

An active secondary loan market can deliver significant benefits to banks, borrowers and other market participants. For banks, benefits include capital optimization, better liquidity and risk management. This will in turn lead to additional credit creation in the economy.

For borrowers, the main benefits will inter alia cheaper and easier funds.

A developed secondary loan market will also enable enhanced return opportunities for smaller banks, NBFCs, insurers, pension funds and hedge funds, says the report.

Dear Reader,

Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.

We, however, have a request.

As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.

Support quality journalism and subscribe to Business Standard.

Digital Editor

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel