Why in news?

• The Reserve Bank of India (RBI) on Wednesday constituted a task force to suggest policy and regulatory interventions required for development of secondary market in corporate loans, including loan transaction platform for stressed assets.

Highlights:

• The six-member body, headed by Canara Bank chairman T. N. Manoharan, has been set up to review the existing state of the market for loan sale/transfer in India as well as international experience in loan trading
• The terms of the committee would be to suggest required policies for facilitating development of secondary market in corporate loans, including loan transaction platform for stressed assets, creation of a loan contract registry, its ownership structure and related protocols such as standardization of loan information, independent validation and data access.

Importance of the committee:

• In India, banks sell their stressed loans to the asset reconstruction companies, but has practically no other alternatives
• Globally, there is a healthy corporate loan market where banks can offload their stressed assets and those get traded
• Credit Default Swaps (CDS) against these loans also get developed as a result
• A vibrant, deep and liquid secondary market for debt would go a long way in increasing the efficiencies of the debt market in general and would aid in resolution of stressed assets in particular. A well-developed secondary market for debt would also aid in transparent price discovery of the inherent riskiness of the debt being traded