Key Points:
– A well developed corporate bond market supports economic growth
– It provides an alternative source of financing to supplement the banking system and provides financial stability by moving fund concentration from the banking sector
– It helps issuers to customize issuance to match maturity profile, hence reduces maturity risk
– The government has set Infrastructure Vision 2025 with the announcement of the National Infrastructure Pipeline of INR 111 Lakh Crore (USD 1.4 Trillion)
– The banking sector has just come out of NPA challenges, and its appetite to lend to such assets is constrained. Further, bank’s ability to lend to infrastructure projects is restricted due to a shorter dated liability structure.
– A well-developed corporate bond market can substitute bank lending for long-term financing.
– It will also help long-term investors like insurance companies and pension funds to invest in long-term assets to match their ALM profile.
– Regulators and the government have taken a series of steps to develop the market. Though in absolute numbers the market has grown substantially, in terms of % of GDP, the size of the corporate bond market is very small, even in comparison with other emerging Asian markets.
– Trading volumes are very low; this is due to the lack of development of CDS and REPO market.
– Participation by lower rated issuers are very restricted. As per RBI Report, 80% of bond issuances are by AAA rated entities and 15% are by AA rated entities.
