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T N Manoharan taskforce on secondary market for corporate loans submits its report to RBI

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On September 3, 2019, A 6-member taskforce on secondary market for corporate loans, headed by Canara Bank Chairman TN Manoharan has submitted its report to RBI (Reserve Bank of India) Governor Shaktikanta Das.TN Manoharan - secondary market for corporate loans

Key recommendations:
i. Self-Regulatory Body:
 RBI’s task force proposed to setting up of a Self-Regulatory Body for the standardization of corporate loan documents.
ii. Central Loan Registry:  It also favoured to set up Central Loan Contract Registry and online loan sales platform, which enable to conduct auctions and sale of secondary market loans.
iii. Relaxation:  It also recommended easing rules around the securitization of loan assets by suggesting to consider single loan securitization to incentivize investors to acquire loans through the secondary market mechanism.

  • Background: At present, the securitization process is permitted only for a high volume of homogenous assets.

iv. FPIs:  It also called to ease the regulations to enable foreign portfolio investors (FPIs) to directly purchase distressed loans from banks.

  • Background: Currently FPIs are permitted to invest in stressed assets through asset reconstruction companies (ARCs).

v. Boosting the secondary market: It also proposed to amend regulations provided by the entities of SEBI(Securities and Exchange Board of India), IRDA(Insurance Regulatory and Development Authority) and PFRDA(Pension Fund Regulatory and Development Authority) to allow wider participation of non-banking firms such as mutual funds, insurance companies, and pension funds in trading the securities. This move will develop the secondary market.

  • Background: Currently, only the banks and NBFCs are the participants in the primary and secondary loan markets. Globally, secondary loan market is participated by diverse and high number of groups, including investment banks, commercial banks, hedge funds, pension funds, mutual funds, insurance companies, private equity funds, and specialist loan brokers.

vi. On May 29, 2019, The 6- member Task Force on Development of Secondary Market for Corporate Loans under the Chairmanship of T. N. Manoharan, Chairman, Canara Bank was constituted by RBI.
The composition of the panel include,

  • Shri V. G. Kannan, Chief Executive, Indian Banks’ Association
  • Shri Bahram Vakil, Founding Partner, AZB and Partners
  • Anand Srinivasan, Additional Director (Research), CAFRAL
  • Sajjid Z. Chinoy, Chief India Economist, J P Morgan
  • Shri Abizer Diwanji, Head – Restructuring & Turnaround Services, EY India

vii. The RBI will now placed the report for public comments by September 30, 2019.
About RBI:
Headquarters: Mumbai, Maharashtra
Founded: 1 April 1935
Deputy Governors: 4 (BP Kanungo, Mahesh Kumar Jain, N S Vishwanathan & the 4th is yet to be appointed).