Yes, What the Doctor Ordered, Gov Das

Context: RBI governor spoke last week on the need for accelerating financial market reforms. 

Need for Financial Market Reforms:

• Better allocation of resources
• Mitigate financial risks
• Boost transparency across the board

Issues with Financial markets:

• While the interest rate derivative market has grown, it remains confined to one product, the Overnight Index Swap, and to a small set of participants.
• Illiquid corporate bond market:  The vast bulk of it remains privately placed and simply held to maturity.

Steps taken:

• The Bilateral Netting of Financial Contracts Act, 2020 should rationalise capital exposure for derivative contracts and could boost the market for Credit Default Swaps, and provide insurance for corporate bonds.
• Banks can now deal in the offshore rupee derivatives market.
• Norms for foreign portfolio investors have been eased.

Way Forward:

• Policy-induced vibrant corporate bond market: to shore up transparency in the allocation of funds for big-ticket, long-gestation projects, and routine market oversight of the assets. 
• A thriving fintech ecosystem: Fintech should be seen as an integral part of financial reform, not just to broaden access but also to improve the quality of mediation.

Conclusion: In tandem, what’s required is to complete the markets for better management of currency, interest rate and credit risks.