Being an extremely peaceful organism in the cosmos, my altergo searches for frequent run ins with Aliens, Genetically Modified Beings, Hostile Extraterrestrials, Terrorist attacks and many such senseless action hallucinations which I thoroughly enjoy. I am a big fan of the "Mummy" series as well. Insane as people might want to refer me, But I guess we all have our share of weird choices. But the bottom line was that owing to my ill health I had to miss the premier of the Mummy - 3 as I did not want to take chances with my health.
So, while battling with my never ending fight with the "Jaundice", my boss called me up. He mentions very casually of a meeting being organised by the Ministry of Urban Development and the Ministry of Finance and I jump out of my seat. He asks me if I was fine enough to attend the meeting. I wanted to find out the agenda of the meeting else it would be like any other dead rubber on Urban Development discussions. The topic was on "Development of Municipal Bond market". Hmm, that sounded interesting. I just wished the discussion to be as good as the topic as I was going to risk my health for.
So all dressed up for the occasion, I arrived at the venue. It was quite a crowd. In a small room, we were a gathering of about 50 people. I knew most of them. But I cannot say that the rest of the junta knew me as well. ( What a stupid expectation Deepak) It was also heartening that members from the SEBI, RBI, IRDA, LIC and other participants of the capital market and urban Infrastructure experts were also present. Also present was Mr. K.P. Krishnan, Jt. Secretary (Ministry of Finance). And of course, it was chaired by honorable Secretary of MoUD Mr. Ramachandran. So, when the discussion began it came out with a bang. Initial comparisons were drawn with the US municipal bond market. But I (along with many others) found the whole argument rather ludicrous to begin with. They have a history of nearly 100 years of a Municipal Bond market(Quite interesting given that civilization in that part of the continent started a good thousand and half years later than ours). There are learnings, but drawing an exact analogy could be very impractical. Most wanted an answer to the eternal question of the "Bankruptcy". What if the Local Body fails to honour its annual and final commitment to the investors??? No one had a clear answer to that. It was a constitutional issue and was a separate discussion in itself. But really the one point that set the cats among the pigeons was that of giving "SLR" status to bonds issued by Local Bodies (SLR status to Bonds means that these bonds become eligible under a compulsory investment by Banks directed by RBI). It was not taken well by the RBI officials. According to them in the past they had burnt their fingers with granting "SLR" status to State Finance Entities. These entities with State Government guarantee had defaulted which had led to Banks going in for a one time settlement with them. With Corporate Governance being a gray area with Local Bodies, RBI is not willing to take chances this time. A representative from Life Insurance Corporation, presented this view from a different perspective. He mentioned that because of the aforesaid mentioned reasons, LIC was unlikely to risk insurance money into bonds issued by local bodies.
Nobody discussed the supply side at length, which remains fairly sluggish. Say's law of market will definitely not hold true in this scenario (Say was a classical economist who said,"Supply creates its own demand"). Questions on the supply side were conveniently sidelined on the grounds that the discussion was focussed on those 10%Local Bodies, who not only had the need and capacity to raise funds through the issuance of bonds, but also maintained a fairly satisfactory levels of Governance.
At the end of the intense debate, the august gathering zeroed in on the following issues -
A) Giving "priority sector" status to bonds issued Local bodies (For banks)
B) Inclusion of bonds issued by local bodies under the approved securities for Insurance Companies
C) Encouraging ULBs to issue Taxable Bonds & not be steadfast on Tax Free bonds
D) Shortening the approval time line for Tax Free Bonds
E) Including Bonds issued Local Bodies in the Investment Pattern for Retirement benefit trusts
I am not sure if I can take some credit (due to the lack of evidence), but the majority of facts presented as likely impediments to developing a vibrant municipal bond market were in close similarity to the ones we have been harping in every gathering of local bodies. Or may be they are really so generic that we might not really have unearthed a pot of gold when we first delved deep into the issue. I wanted to stay longer, but I passed out before the luncheon.
But my reward came a week later, when Reserve Bank of India asked a us (my company) to join a "Working Group on Local(Urban) Finance". That was a personal triumph in many ways. My little baby steps were going somewhere after all.
So, while battling with my never ending fight with the "Jaundice", my boss called me up. He mentions very casually of a meeting being organised by the Ministry of Urban Development and the Ministry of Finance and I jump out of my seat. He asks me if I was fine enough to attend the meeting. I wanted to find out the agenda of the meeting else it would be like any other dead rubber on Urban Development discussions. The topic was on "Development of Municipal Bond market". Hmm, that sounded interesting. I just wished the discussion to be as good as the topic as I was going to risk my health for.
So all dressed up for the occasion, I arrived at the venue. It was quite a crowd. In a small room, we were a gathering of about 50 people. I knew most of them. But I cannot say that the rest of the junta knew me as well. ( What a stupid expectation Deepak) It was also heartening that members from the SEBI, RBI, IRDA, LIC and other participants of the capital market and urban Infrastructure experts were also present. Also present was Mr. K.P. Krishnan, Jt. Secretary (Ministry of Finance). And of course, it was chaired by honorable Secretary of MoUD Mr. Ramachandran. So, when the discussion began it came out with a bang. Initial comparisons were drawn with the US municipal bond market. But I (along with many others) found the whole argument rather ludicrous to begin with. They have a history of nearly 100 years of a Municipal Bond market(Quite interesting given that civilization in that part of the continent started a good thousand and half years later than ours). There are learnings, but drawing an exact analogy could be very impractical. Most wanted an answer to the eternal question of the "Bankruptcy". What if the Local Body fails to honour its annual and final commitment to the investors??? No one had a clear answer to that. It was a constitutional issue and was a separate discussion in itself. But really the one point that set the cats among the pigeons was that of giving "SLR" status to bonds issued by Local Bodies (SLR status to Bonds means that these bonds become eligible under a compulsory investment by Banks directed by RBI). It was not taken well by the RBI officials. According to them in the past they had burnt their fingers with granting "SLR" status to State Finance Entities. These entities with State Government guarantee had defaulted which had led to Banks going in for a one time settlement with them. With Corporate Governance being a gray area with Local Bodies, RBI is not willing to take chances this time. A representative from Life Insurance Corporation, presented this view from a different perspective. He mentioned that because of the aforesaid mentioned reasons, LIC was unlikely to risk insurance money into bonds issued by local bodies.
Nobody discussed the supply side at length, which remains fairly sluggish. Say's law of market will definitely not hold true in this scenario (Say was a classical economist who said,"Supply creates its own demand"). Questions on the supply side were conveniently sidelined on the grounds that the discussion was focussed on those 10%Local Bodies, who not only had the need and capacity to raise funds through the issuance of bonds, but also maintained a fairly satisfactory levels of Governance.
At the end of the intense debate, the august gathering zeroed in on the following issues -
A) Giving "priority sector" status to bonds issued Local bodies (For banks)
B) Inclusion of bonds issued by local bodies under the approved securities for Insurance Companies
C) Encouraging ULBs to issue Taxable Bonds & not be steadfast on Tax Free bonds
D) Shortening the approval time line for Tax Free Bonds
E) Including Bonds issued Local Bodies in the Investment Pattern for Retirement benefit trusts
I am not sure if I can take some credit (due to the lack of evidence), but the majority of facts presented as likely impediments to developing a vibrant municipal bond market were in close similarity to the ones we have been harping in every gathering of local bodies. Or may be they are really so generic that we might not really have unearthed a pot of gold when we first delved deep into the issue. I wanted to stay longer, but I passed out before the luncheon.
But my reward came a week later, when Reserve Bank of India asked a us (my company) to join a "Working Group on Local(Urban) Finance". That was a personal triumph in many ways. My little baby steps were going somewhere after all.
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