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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)
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Introduction to Indian Debt Market
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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.
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33.30% increase in Volume in comparison of 2010-11In 2011-12 about 72.60% resources raised by G-Sec
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Position of Indian Bond Market in Asia
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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
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Corporate Debt Market
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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.
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Debt Market Segments-NSE
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Security-wise Distribution of WDM Turnover
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Participants-wise Distribution of WDM Turnover
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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
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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
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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
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The Problem Supply SidePrivate Placement Absence of sub-investment grade securitiesLack of supply of innovative debt instrumentsLong and expensive issuance process
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The Way Forward
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The Way ForwardThe issue of Regulatory Overlapping should be addressed.
Need of Simple Products.
Increase Liquidity in Secondary Market
Tax Incentives
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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.)
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Thank You
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Why Private Placement ? Minimum Disclosures
Low cost
Tailor made Structures
Speedy Fund Raising
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Structure of Indian Debt Market
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Trend of Primary Issuance of Corporate Bonds (Rs Bn)