ARCL and CDMDF

July 29, 2023

The Indian financial market has witnessed significant growth and development in recent years, driven by various government initiatives aimed at enhancing liquidity, market stability, and investor confidence. In a recent event, Union Finance Minister Nirmala Sitharaman launched two crucial institutions (ARCL and CDMDF) to further bolster the corporate debt market and encourage global market access for Indian companies.

AMC Repo Clearing Limited (ARCL): Clearing and Settlement of Corporate Bond Repo Transactions

One of the significant developments in India’s financial market is the establishment of AMC Repo Clearing Limited (ARCL). The newly launched institution focuses on the clearing and settlement of corporate bond repo transactions. By facilitating smooth and efficient repo services, ARCL aims to widen and deepen the corporate bond repo market. This move is expected to boost liquidity and improve accessibility to funding for inventory and short-term liquidity needs without liquidating assets. ARCL represents a pivotal step towards creating a more vibrant and dynamic corporate bond repo market.

Corporate Debt Market Development Fund (CDMDF): Enhancing Secondary Market Liquidity

The government’s commitment to enhancing secondary market liquidity in the corporate bond market led to the creation of the Corporate Debt Market Development Fund (CDMDF). This fund operates as a permanent institutional framework to instill confidence among market participants during both stressed and normal times. The CDMDF’s primary goal is to purchase investment-grade debt securities, thereby bolstering the bond market’s development and stability. It provides a backstop facility in times of market dislocation, offering a safeguard for corporate debt investors and contributing to a more resilient financial ecosystem.

Market Capitalisation Milestone: India’s Progress

Market Capitalisation has reached an impressive Rs. 300 lakh crore. This achievement is a testament to the country’s robust financial market growth. Over the past decade, India’s Market Capitalisation has nearly doubled every five years, making it the fifth most-valued country globally. The surge in Market Capitalisation reflects growing investor confidence and a positive outlook for India’s economic prospects.

IFSC: Enabling Direct Listing and Access to Global Markets

The International Financial Services Centre (IFSC) is a crucial platform that enables direct listing of listed and unlisted companies on its exchanges. This initiative is set to be operational shortly, allowing startups and similar companies to access global markets through the GIFT IFSC. Such access to global markets not only offers Indian companies better valuations but also opens doors to global capital, fostering growth and expansion opportunities.

Expanding Corporate Debt Issuers: REITs and InvITs

The Union Budget 2021 introduced a legal framework for new types of entities, such as Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), to issue corporate debt securities. This move diversifies the corporate bond market by encouraging different entities to participate actively. REITs and InvITs contribute to the country’s infrastructure and real estate sectors, attracting a wider investor base and boosting overall market activity.

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