To revive the equity market, the Ninth Plan draft has suggested that new issues or initial public offers should not be listed on main stock exchanges immediately on issuance of paper. These scrips should be listed on the main exchanges only after they establish a track record on the Over the Counter Exchange of India (Otcei) or other subsidiary exchanges.Examining weakness in the financial sector the draft paper has suggested a series of measures for widening the market so that long-term funds can be easily raised from the market.
The draft suggests that the primary market needs to be strengthened as it has been abused by bad and over-priced issues. To revive confidence, FIIs should be allowed easier entry into the primary market and the Otcei. Norms for badla and other derivatives on the Otcei should be less stringent. And issue houses should be set up to bridge finance IPOs, it says.
As a first step towards linking the segmented financial market, it suggests that the insurance sector be opened to theIndian private sector. The industry should also undergo a restructuring exercise, it says.
Long-term funds locked up in provident and pension funds can be made available to industry by vesting the management of these funds to employee associations as trade unions, the draft further suggests. Decentralising control of these funds ``by which a direct nexus can be established between the management of these funds and the beneficiaries,'' will prompt the fund managers to take higher risks.
Developing a secondary market for debt paper is critical. In this regard, the draft suggests that the National Stock Exchange be encouraged to deepen the debt market. The draft makes three suggestions on this score:
The government can improve public involvement by issuing public securities of lower denominations,
Banks should be allowed to put their CRR funds in T-Bills instead of depositing it with RBI
The government should securitise its loans to PSUs and float them in the market.
In conjunctionwith these measures, the government, the draft suggests should move its debt portfolio towards shorter tenures as that would give a three-fold benefit. It would:
Improve monetary control
Increase the liquidity in the debt market, and
Allow larger sections of SLR funds to be allocated for states and public sector enterprises.
Dwelling on the banking sector, the draft makes the radical suggestion that commitment to priority sector lending should be extended to non banking financial institutions.It perceives the CRR to continue as an effective tool for macro economic management ``till the interest rates on T-bills and the bank rate become credible instruments.'' The statutory liquidity ratio will continue to be useful to raise resources for the government. And, it ``should be extended to non-bank financial institutions'' so that holding of public debt is diversified.
Regarding the incidence of high NPAs in banks, it says that banks should not be excessively pressurised as thatwould bring decision making to a halt.Instead, internal control should be beefed up. The various banking institutions should share information on NPAs to prevent companies from sneaking up to less alert banks.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
