Recently, NITI Aayog suggested that  India must expand its corporate bond market sevenfold to meet long-term financing needs and reduce dependence on bank-led credit.

• Currently, India’s corporate bond market is about $650 billion, significantly smaller than the UK’s over $4 trillion market making the UK’s nearly six times larger despite a smaller economy.

Key Recommendations from NITI Aayog Report 

• Regulatory Harmonisation: Suggests coordinated oversight among the Securities and Exchange Board of India (SEBI), the Reserve Bank of India (RBI), and the Ministry of Corporate Affairs (MCA), reducing approval timelines and streamlining issuance procedures to improve market efficiency.
• Market Expansion: Expansion of issuer categories, greater MSME access, enhanced secondary market liquidity and broader investment mandates for insurance and pension funds.
• Technology-Driven Market Infrastructure: It recommends unified databases, transparent trading platforms and digital, equity-style systems to boost retail participation and support new instruments like green and transition bonds.

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About Corporate Bond Market in India

• The corporate bond market enables companies to raise debt by issuing bonds that repay principal along with periodic interest to investors.
• Definition & Purpose: Corporate bonds are debt securities issued to fund business expansion, infrastructure, working capital and refinancing, offering investors fixed income without ownership dilution.
• Types of Corporate Bonds
  • Investment Grade vs. High-Yield: Safer returns versus higher-risk, higher-yield options.
  • Secured vs. Unsecured: Secured bonds are backed by assets; unsecured rely on issuer credibility.
  • Fixed vs. Floating Rate: Fixed coupons remain constant, whereas floating rates vary with benchmarks.
  • Convertible Bonds: Convert into equity under specified terms.
  • Zero-Coupon Bonds: Issued at discount, redeemed at face value without periodic interest.
• Role : Corporate bonds support long-term capital formation, diversify financing beyond banks, influence benchmark interest rates and create a stable source of funds for infrastructure and industry.
• Regulation in India
• • SEBI: Primary regulator ensuring disclosure, transparency, electronic book-building and investor protection.
  • RBI: Oversees liquidity, settlement systems, systemic risks and credit derivatives.
  • Recent Reforms: Online Bond Platform Providers (OBPPs), simplified issuance rules, enhanced reporting and efforts to widen retail and institutional participation.

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