Indian debt market way behind developed economies: ASSOCHAM-CRISIL study

31 Jan 2018 Evaluate

A joint study carried out by the industry body Associated Chambers of Commerce & Industry of India (ASSOCHAM) and rating agency CRISIL has stated that with a meagre 35% and 17% debt market penetration in Government securities (G-secs) and corporate bonds, India’s debt market significantly trailing those of the developed economies like the United States of America (USA) where it is 83% and 123% respectively. It added that Indian debt market also suffers from a skew towards sovereign paper, with G-secs (including treasury bills and state-development loans) accounting for three-fourths of the pie, while bank loans form predominant medium of corporate funding. It noted that corporate bond market has grown over the years, it is heavily tilted towards top-rated papers and the banking, financial services and insurance domains, both in primary and secondary segments.

According to the report, there is lack of participation, of both individual and institutional investors. While individual investors limit themselves to the most accessible bank fixed deposits (FDs), institutional investors, such as insurance and pension funds are restricted by regulatory constraints, especially in terms of preference to G-secs over bonds. As per the study, response of foreign portfolio investors (FPIs) has remained mixed, individual investors are warming up to debt investments evidently as their investments in debt mutual funds increased from Rs 74,386 crore as of March 2009 to Rs 3.63 lakh crore as of September 2017. Moreover, a slew of macroeconomic and regulatory developments have aided growth of debt market.

On the economic front, the study said that stable inflation, fiscal improvement, a stable currency and addressing of structural interest rate issues by linking transmission of interest rates to small savings instruments have helped. While it added that on the regulatory front the positives include - implementation of Insolvency and Bankruptcy Code (IBC), uniform bond valuation, standardisation of issuance/reissuance and electronic biddings, framework for large borrowers, additional norms for credit rating agencies and corporate bond repos.

Adding that bringing a higher share of people under organised sector employment, promotion of financial intermediation and measures to increase foreign investors into the debt market would spur its growth, it said that more needs to be done, in terms of investor awareness, development of new products and simplification of taxation structure. Highlighting the important role of debt market in the global economy, the study said it benefits all the three parties associated that is issuers, investors and regulator/environment.

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