CDS recast timing, modalities need to be defined well: RBI

Posted By: Pti
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Mumbai, Feb 24 (PTI) Reserve Bank deputy governorShyamala Gopinath today said the timing, definition, and themodalities of debt rescheduling under the proposed creditdefault swap (CDS) scheme have to be discussed in detail as itwas a very complex issue.

Stating that this is a very complex process and also anew product, Gopinath said, "we need to look at the entireissue clearly. Since CDS is a tradable product, we have tomake it transparent."

Speaking to reporters on the sidelines of an IndianMerchant Chamber function here, she said "Debt rescheduling isa very complex issue globally, and so was here when wediscussed it with the industry initially...There are manyquestions involved in it and the first question is who doesthe rescheduling?

"If one company goes to its bank and asks forrescheduling its debt or loan, how do you go about doing it?The point is the whole issue has to be transparent as CDS is atradable product," the deputy governor said.

Yesterday, the RBI had issued the draft CDS guidelines,and sought comments from stakeholders by March 8.

The CDS is a swap contract in which the buyer ofprotection against a bond or loan makes regular premiumpayments to a counterparty who assumes the risk in the eventof a default.

In short, it is a risk management product that helpsentities guard against possibility of defaults, and will helpin developing the corporate bond market, which is almostnon-existing here as the debt market is nearly 80 percentdominated by government papers. .

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