Indian Corporate Bond Market

Indian Corporate Bond Market
Avinash kumar Singh
Master oI International Business
Department oI Commerce
University oI Delhi
CorporaLe 8ond
W A corporaLe bond ls a bond lssued by a corporaLlonŦ lL ls a
bond LhaL a corporaLlon lssues Lo ralse money ln order Lo
expand lLs buslnessŦ
W 1he prlvaLe corporaLe debL markeL provldes an alLernaLlve
means of longŴLerm resources (alLernaLlve Lo flnanclng by
banks and flnanclal lnsLlLuLlons) Lo corporaLeŦ
W 8road CaLegorlesŴ
1Ŧ Secured vs unsecured uebL
2Ŧ Senlor vs SubordlnaLe uebL
lndlan uebL MarkeL
lndlan CorporaLe 8ond MarkeL
W 8esource moblllzaLlon Lhrough debL lssues
Þubllc lssue
ÞrlvaLe ÞlacemenL
W 1radlng ÞlaLform and SLock LxchangesŴCorporaLe debL
lnsLrumenLs are Lraded elLher as bllaLeral agreemenLs beLween Lwo
counLerparLles or on a sLock exchange Lhrough brokersŦ Worldwldeţ Lhe
ma[orlLy of LransacLlons ln corporaLe bonds ls conducLed ln Lhe overŴLheŴ
counLerŴ (C1C) markeL by bllaLeral agreemenLsŦ
Ŵln lndla corporaLe bonds are Lradedţ mosLlyţ on WuM segmenL of nSLŦ 1he
naLlonal SLock Lxchange (nSL) lnLroduced a LransparenL screenŴ based Lradlng
sysLem ln Lhe whole sale debL markeLţ lncludlng governmenL securlLlesŦ
Ŵ1he wholesale debL markeL (WuM) segmenL of nSL has been provldlng a
plaLform for Lradlng / reporLlng of a wlde range of debL securlLlesŦ
ConLdŦ
W 1radlng sysLem provldes Lwo markeL sub
Lypesť
ConLlnuous AuLomaLed MarkeL
negoLlaLed markeL
W Clearlng and SeLLlemenL Mechanlsm
W lnsLrumenL 1raded on WuMŴ 1he WuM provldes Lradlng
faclllLy of a varleLy of debL lnsLrumenLs lncludlng governmenL securlLlesţ
1reasury 8llls and bonds lssued by ÞSu/CorporaLe/8ank bonds llke l8nţ ZC8ţ
Commerclal papersţ SL8 or nonŴSL8 bonds lssued by flnanclal lnsLlLuLlons eLcŦ
CorporaLe 8ond MarkeL of Lhe
ueveloped CounLrles (uSţ !apan)
W 1he developed flnanclal markeLs are characLerlzed by Lhe exlsLence of
sound flnanclalţ legal and regulaLory framework LhaL can ald and supporL
Lhe developmenL of debL markeLs lncludlng Lhe corporaLe debL markeLŦ
W 1he uŦSŦ markeL ls well dlverslfled and conslsLs ofť Agency MorLgage
8acked SecurlLlesŤ lederal Agency SecurlLlesŤ 1reasury 8ondsŤ CorporaLe
8ondsŤ AsseL 8acked SecurlLlesŤ and Munlclpal 8ondsŦ 1he experlence of
Lhe uŦSŦ bond markeL ls a clear lndlcaLlon LhaL a well dlverslfled bond
markeL can help channel resources boLh Lo Lhe prlvaLe secLor and Lhe
governmenLŦ
W 1here are no speclflc rules resLrlcLlng Lhe parLlclpaLlon of reLall lnvesLors ln
!apanese bond markeLsŦ lnvesLors ln !apan's bond markeL comprlse
lndlvldual lnvesLorsţ Lhe ÞosLal Savlngs SysLemţ ÞosLal Llfe lnsurance
Servlce (kanpo)ţ publlc and corporaLe penslon fund sysLemsţ lnvesLmenL
LrusLsţ llcensed banksţ and lnsurance companlesŦ
CorporaLe 8ond MarkeL of Lhe
ueveloplng naLlons(korea)
W 1he korean bond markeL ls one of Lhe largesL markeLs ln AslaŦ varlous
reforms are behlnd Lhls rapld developmenLţ lncludlng gradual markeL
llberallzaLlonŦ CurrenLlyţ all flxed lncome lnsLrumenLs are avallable Lo
forelgn lnvesLorsŦ
W 1he korean corporaLe bond markeL has been a vlLal componenL of koreaƌs
rapld economlc advancemenLŦ
W 1he korean governmenL Look varlous lnlLlaLlves Lo Lransform Lhe baslc
lnfrasLrucLure of Lhe counLry's bond markeLŦ lL shlfLed lLs prlmary role
from dlrecL markeL lnvolvemenL Lo prudenL regulaLlon and supervlslonţ
and consolldaLed separaLe supervlsory bodles for greaLer managemenL
proflclencyŦ
ConLdŦ
CorporaLe 8ond MarkeL Challenges
W Low lssuance leadlng Lo llllquldlLy ln Lhe secondary
markeL
W narrow lnvesLor base
W lnadequaLe credlL assessmenL skllls
W Plgh cosL of lssuance
W Lack of Lransparency ln Lrades
W nonŴsLandardlsed lnsLrumenLs
W Comprehenslve regulaLory framework
W underdevelopmenL of securlLlsaLlon of producLs
W Lack of dedlcaLed lnLermedlarles (8ond Managers)
W Peavy LllL Lowards prlvaLe placemenL
1he Way lorward
W 1lme and CosL of lssuance
W lnsLlLuLlonal lnvesLors
W ÞeneLraLlon of MuLual lund
W 8ellable and Llquld ?leld Curve
W 1radlng and SeLLlemenL lnfrasLrucLure for uebL MarkeL
W uebL uerlvaLlve MarkeL
W MarkeL Maklng for uebL lnsLrumenLs
W ÞroducL SLandardlsaLlon
W 1ransparency and CorporaLe Covernance
SuggesLlons and 8ecommendaLlons
W 1he lndlan bond markeL has noL evolved much buL Lhe govLŦ as well as Lhe
lndusLrles are keen Lo make debL markeL vlable for lnvesLors and Lhe
LradersŦ varlous commlLLees had also been formed and Lhelr
recommendaLlons are under conslderaLlonŦ
W lndlan clLlzens are savlng much Lhese days and Lhey are looklng for varlous
avenues where Lhey can geL aLLracLlve reLurn wlLhouL Laklng much rlsk so
Lhere lles an opporLunlLyŦ
W lndlabulls can Lle up wlLh Lhe fund houses whlch have exposure ln
corporaLe bonds and lL can suggesL lLs cusLomer abouL Lhe rlsk and reLurn
assoclaLed wlLh Lhls segmenLŦ
W lL can come up wlLh some awareness programs where lL can leL lLs
poLenLlal lnvesLors know abouL Lhls producLŦ
W lndlabulls may adopL a Lwo way approach where lL can convlnce
companles Lo be more bond cenLrlc and leL Lhe lnvesLors know abouL Lhe
alLernaLlve opLlons avallableŦ
1nANk ¥CU