To develop capital market:

Consultative committee, a must

Players are urging the government to set up a consultative committee comprising regulators and industry players to iron out issues and increase confidence in the capital market as regulators are not aware of its practical operations.

CEO RAM Ratings Lanka Adrian Perera said that the players are not asking for tax concessions or a relaxation of regulations but a level playing field to develop the capital market to be on par with other countries.

The debt market is around Rs. 50 b and a withholding tax is charged on corporate paper.

Therefore, it is not on par with bank loans as people prefer to obtain a bank loan rather than a commercial paper. It doesn’t make sense to charge interest as the debt market is very small.

It is a viable option to remove it as it is a fledgling market. Once the market is developed the regulator can implement it. Perera said that the IMF and the Central Bank are keen to develop the debt market.

Therefore, it is a must to set up a consultative committee and get the opinion of industry players before implementing any regulations which can be harmful to the development of the market.

He said that the private debt securities market should be regulated. At present there is a private debt securities market that cannot be tracked.

Therefore, a simple system to register these institutions and make rating mandatory should be initiated. The Central Bank too has to get involved as the papers go through the banking sector.

In addition, investment banks and investment houses are not regulated. Since we are developing the market, it is a must to regulate them now and ensure that they have proper capital and employ professionals which will give confidence to investors.

In addition, the corporate finance (investment banking) arm should be removed from the banks. It will be a success story like that of primary dealers who went to the market on their individual strengths. After the global financial crisis universal banking is not considered a viable option any more.

Among the other issues affecting the market is the lack of qualified and experienced people and lack of willingness by companies to obtain a rating. Steps must be taken to train people which will help investors to make informed and correct decisions. Also rating should be made mandatory. This will give confidence to investors as rating is being done by an outside company. In the USA, Perera said all companies are rated by three individual rating agencies. In countries such as Singapore and Malaysia too rating is mandatory.

He said that after Central Bank Governor Ajith Nivard Cabraal assumed office, a consultative committee comprising industry players and the regulators was established for the banking industry. It is a welcome move as all issues pertaining to the industry can be discussed and solved. Establishing such a committee for the capital market will help the country to become a financial hub in two years as funds are coming into the Asian markets.

He said that it is an achievable target, but the fundamentals have to be in place fast if we are to entice investors.