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Why Indian bond market is lacking?


Current situation of the bond market


Bonds have very less penetration in the Indian markets. Foreign investors hold only about 2% of all outstanding government securities and the RBI has historically been averse to large debt inflows.

Public participation in government bonds has been considerably low too.


India is lagging behind it's fellow Asian peers in terms of bond outstanding as percentage of GDP.




One of the reasons why the corporate bond market has been thin in India is the dominance of private placements in the primary market. Less than 2% of the funds are raised through public issues.


Bond market is the backbone of a country


Stability - Development of the corporate bond market in the country increases it's resilience.


Liquidity - It enables companies to raise money easily during extraordinary times like Covid.


Growth - With easier and cheaper credit available, corporates can increase their profitability due to low cost of capital.


Participants in the Indian Bond Market


Government Entities

The government of India plays a significant role in the bond market as a major issuer of government securities. These securities help finance budgetary requirements and meet long-term infrastructure needs. The Reserve Bank of India (RBI) acts as the central authority for issuing and managing government securities.


Financial Institutions


Commercial banks, insurance companies, and non-banking financial companies (NBFCs) are active participants in the Indian bond market. They invest in various bonds, including government securities and corporate bonds, to manage their liquidity and generate income.


Corporates


Indian companies, both public and private, raise funds through the issuance of corporate bonds. These bonds offer an alternative avenue for companies to raise capital for expansion, working capital requirements, and debt refinancing.


Retail Investors


The bond market in India has been gradually opening up to retail investors, allowing them to participate directly or through mutual funds. Retail investors can diversify their investment portfolios by investing in bonds with different risk-return profiles.


What is RBI doing about it ?


RBI Retail Direct


RBI has launched a platform for retail investors to directly invest in government securities, sovereign gold bonds and to participate in the primary issuance of Central/ State government.


This major step will not only help spread awareness about the bond market of India, it will also prove ease of access to all retail investors willing to participate in it.




 

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