The Securities and Exchange board (Sebi) of India chairman Ajay Tyagi on Wednesday said the regulator will soon release a consultation paper to develop a robust secondary debt market. The size of the domestic bond market at $287 billion is much smaller than that of the equity market at $2.2 trillion. Tyagi said the final guidelines will be drafted in consultation with all the stakeholders. “Sebi is in consultation with the Reserve Bank of India (RBI) and the government, and will take steps to enhance a secondary market for corporate bonds, so that liquidity improves,” Tyagi explained.
Tyagi highlighted the importance of liquidity and added that bad loans crisis in the banking system may cross 12.6% by March and this was an opportunity to deepen the bond market. The current situation in the banking sector will drive more corporates to raise funds through bonds for fund requirements, he said. He also expressed concern over the continued tightening in bond yields since the past six months due to higher interest rates.
The interim finance minister had recently said that the country will require $4.5 trillion over the next 10 years for its infrastructural needs alone. The panelists at the conference explained that the funding for this cannot be raised through banks alone.
Ashishkumar Chauhan, MD & CEO of Bombay Stock Exchange, explained that the bond market is still very small compared to the equity market “The domestic corporate bonds market is worth $287 billion. On the other hand the equity market is worth $2.2 trillion, it used to be around $2.5 trillion but because of the rupee depreciation, the value has fallen. The size of the banking system is around $1.5 trillion. Therefore the bond markets size is around 20% of the banking system.