Development of Corporate Bond Market in India – Challenges and Reforms

Abstract

Corporate Bond market in India, unlike developed and other Asian counties, is relatively underdeveloped both in terms of depth and liquidity. Given the excessive reliance of corporates on bank funding, credit risks are fairly concentrated within the banking sector. Also the share of corporate issuances is abysmally low when compared to the same in government securities market. Globally bond markets are much bigger than the size of equity market whereas in India the size of corporate debt market has remained insignificant in comparison to that of equity. Although the equity markets in India have grown at a brazen pace fuelled by reforms and participation, bond markets have lagged and continue to remain plagued with various issues and unfavorable policy environment. This paper reviews the current state of corporate bond market in India and discusses issues and policies that can help further deepen and improve liquidity in corporate bond market.