Indian Bond Market

Indian Bond Market

With the liberalization, the bond market in India has been fully changed. The opening up of the financial market at present has influenced several foreign investors holding up to 30% of the financial in form of fixed income to invest in the bond market in India. India’s bond market has diversified dramatically, and that is a major contributor to the economy’s healthy expansion. It has tremendous potential in raising funds to finance the government’s undertaking infrastructural growth and the companies’ expansion plans.

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Debt securities are traded on the National Stock Exchange of India (NSE) and Bombay Stock Exchange (BSE) are as follow:


Despite varied product offerings and continuous efforts India bond market isn’t much developed compared to its other Asian peers. As of the year 2019, Debt-to-GDP solely in Govt. borrowing is 70%. This is alarming underdeveloped corporate bond markets. One plausible reason cited is India’s very nature of the service-oriented economy, the majority of the working-age urban population rely on the service sector for income. This stems from burgeoning entrepreneurship and ownership culture.

Corporate Bond Market Scenario:

India’s corporate bond market growth is still far from satisfactory. In 2019, corporate debt to GDP ratio in India stood at a meager 5 % of GDP with an average debt outstanding of 6.5 Lac Cr. The market for corporate bonds as an investment is restricted mainly to institutional investors with retail investors responsible for just 3% of the outstanding issuances.

What are the reasons for shallow corporate debt markets?

  • Foreign investors, who could have played a crucial role in widening and deepening India’s corporate debt market, were limited by investment restrictions.
  • Banks prefer loans over bonds so they can add loans on their balance sheets without being marked to market.
  • The high cost of borrowing costs through debt instruments vis-à-vis other ways of raising finances and inadequate liquidity in the corporate debt.
  • A bank-dominated financial system with Government-owned development finance institutions channelizing resources to specific sectors of the economy.

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Infrastructural and System limitation in the Indian Bond Market:

Infrastructural limitations hinder the smooth functioning of markets, key operational impediments include small outstanding stock of individual issuances stymieing liquidity in secondary market trading, the functionality of trading platform with central counterparty (CCP) facility, the illiquid market for credit default swaps (CDS), and non-uniform stamp duties on corporate bonds across various States. In India, the proportion of firms using banks as the primary source of working capital is high. Further, the proportion of loans requiring collaterals as well as the value of the collateral (as a proportion of loan) are among the highest in India (refer below graph). This indicates the prevalence of asset-backed loans in India, which is, in essence, a function of a comparatively less mature financial system with limited ability to gauge the credit risk of unsecured loans.


Recent Happening in Indian Bond Market – COVID-19:

India’s whopping $790 billion bond market faced COVID-19 repercussions when there was no activity at all for near about after 30 minutes of opening on the RBI Platform.

Trading declined drastically compared to the early months of 2020 as shown in below Bloomberg chart. Sales of corporate bonds have dwindled. A top-rated state-run lender failed to sell a bond in a sign of funding difficulties faced by firms across the country.


The COVID-19 pandemic lockdown has slowed down the economy, close to Rs 10.52 lakh crore of the corporate debt is at the risk of default over the next three years. Already slowed down GDP growth to a nearly seven-year low of 4.7 percent in October-December 2019 is further beaten down to a meager 1.5% estimation in March 2020.

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Govt. Borrowing Update:

On 12th April states borrowed Rs 12,128 crore from the bond market at rates lower than what they had borrowed at earlier even as the 10-year G-sec yields have risen by a few basis points. Nine states’ earlier plan was to borrow Rs 13,128 crore.
The cut-off yield for 10-year state development loans was 7.60-7.65 percent compared to 6.50 percent for 10-year government securities.


Author: Varsha Bhambhani

About Author: I’m an FRM professional and CFA L-2 candidate with 3.5 years experience is the IB industry, predominantly in Risk Management. My interests include mathematics and finance, in my personal life, I’m highly motivated towards fitness and nutrition.


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