The facilitation of larger institutional investments in corporate bonds and having a dedicated government cell to look into such securities is imperative for the growth of debt markets, says a report. A thriving bonds market would benefit both the issuers and the investors, according to a joint study by Assocham and Crisil. “Issuers will benefit from being able to generate stable funding at low costs, while investors can get secure and predictable cash flows with higher returns compared to plain-vanilla bank fixed deposits,” the report said. The report has outlined three steps to deepen the bond market, including facilitation of larger institutional investment in debt securities.
“Here mutual funds, insurance companies and pension funds have the best chance of channelling financial savings,” the report said. “Second, wean companies away from bank loans: bank financing is by far the most preferred mode of funding in India today and as of September 2016, the corporate bond outstanding to bank loans (corporate) was just 31.73 per cent,” it said. For the debt market footprint to expand, it is imperative that more companies come out with bonds, it noted.
Finally, it is necessary to put in place facilitative policies and infrastructure for the markets, the report said. “Setting up of a dedicated team of experts or department within the Ministry of Finance to facilitate development of the corporate bond market and following up on relevant implementation initiatives will help,” it said.
Additionally, a vigorous investor education and awareness initiative is required to encourage more participation of individual investors, the report said. The corporate bond market in the country is only one fifth of the equity market. Besides, the penetration of corporate bonds, as measured by amount outstanding to GDP, was 18 per cent in 2016, up moderately from over 10 per cent at the turn of this decade, the report added.