Analyze the Indias Debt Market and Suggestions to make it a robust one for support to economic growth.CA. Bineet Sundriyal MBF-5 (New Delhi)

Introduction to Indian Debt Market

Introduction to Indian Debt MarketThe Debt Market is the market where fixed income securities of various types and features are issued and traded.

As of end 2012, the outstanding amount of bonds in India stood at Rs 55.8 trillion ($1 trillion approx.) Indian Bond Market is dominated by Government Securities. At the end of 2012 approx. 79% of Outstanding Bonds were Government Bonds.

33.30% increase in Volume in comparison of 2010-11In 2011-12 about 72.60% resources raised by G-Sec

Position of Indian Bond Market in Asia

Govt. & Corp. Bond Outstanding as % of GDP for Asian Economies

Chart1

48.777.5

62.443.1

53.137

37.831.4

197.217.8

58.615.9

33.113

32.24.9

40.22.4

11.42.3

Govt. (% of GDP)

Corp. (% of GDP)

Sheet1

MarketGovt. (% of GDP)Corp. (% of GDP)

South Korea48.777.5

Malaysia62.443.1

Singapore53.137

Hong Kong37.831.4

Japan197.217.8

Thailand58.615.9

China33.113

Philippines32.24.9

India40.22.4

Indonesia11.42.3

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Outstanding FII Investment Limits in Indian Fixed Income Market

Corporate Debt Market

Features of Corporate Bond MarketCorporate debt market is less than 5% of Indias debt market and around 12% of GDP.

Indias bond market is underdeveloped even in comparison with many emerging markets.

Indian corporate bond market is dominated by AA or higher rated bonds.

Lack of liquidity in secondary market.

Debt Market Segments-NSE

Security-wise Distribution of WDM Turnover

Participants-wise Distribution of WDM Turnover

Corporate Bonds Private Placement vs Public Placement(in terms of volume) in Cr.

Chart1

173281.181500

212634.922500

218785.419451.17

135589.954388.68

Private Palcement

Public Placement

Sheet1

Private PalcementPublic Placement

2008-09173281.181500

2009-10212634.922500

2010-11218785.419451.17

2011-12135589.954388.68

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Year

Private

Placement

Public

Offering

2008-09173281.181500

2009-10212634.922500

2010-11218785.419451.17

2011-12135589.954388.68

Corporate Bonds Private Placement vs Public Placement(in terms of numbers)

Chart1

10411

12783

140410

9766

Private Palcement

Public Placement

Sheet1

Private PalcementPublic Placement

2008-0910411

2009-1012783

2010-11140410

2011-129766

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2008-0910411

2009-1012783

2010-11140410

2011-129766

The Problem Demand SideRegulatory restriction on institutional investorsRestrictions on Banks for investing in Bonds.Insurance companies are permitted to hold a maximum of 25% of their portfolio in bonds rated less than AA.Pension fund managers are regulated to invest under 10% of the funds collected in corporate bonds that are investment gradeIn addition, regulations require that once subscribed to they have to be held to maturity.

Low retail participation

The Problem Supply SidePrivate Placement Absence of sub-investment grade securitiesLack of supply of innovative debt instrumentsLong and expensive issuance process

The Way Forward

The Way ForwardThe issue of Regulatory Overlapping should be addressed.

Need of Simple Products.

Increase Liquidity in Secondary Market

Tax Incentives

Procedural ease for Companies listed on any exchange in India.

Rationalization of Stamp Duty.

Appointment of Market Makers in Corp Bond Market.

Trading Platforms.

The Way Forward(Cont.)

Thank You

Why Private Placement ? Minimum Disclosures

Low cost

Tailor made Structures

Speedy Fund Raising

Structure of Indian Debt Market

Trend of Primary Issuance of Corporate Bonds (Rs Bn)