"Intro To Debt Market"

Objectives s What are Debt Instruments & their Features s Indian Debt Market s
Types of Products s Trading Mechanism Page 2 MindTree Consulting Proprietary
& Confidential
Debt Instruments & Features s Contract between lender and the borroower
Bonds Debentures s Features Maturity Coupon Principal Page 3 MindTree
Consulting Proprietary & Confidential
Modifying s Coupon Zero Coupon Bond Treasury Strips Floating Rate Bond
Others s Term to Maturity Callable Bonds Puttable Bonds Convertible Bonds s
Principal Repayment Amortising Bonds Bonds with sinking fund Provisions Page
4 MindTree Consulting Proprietary & Confidential
Indian Debt Market s Market Segments Government Securities PSU Bonds
Corporate Securities s Participants Government, RBI, PDs, PSUs, FI s, Corporates,
Banks, Mutual funds, FII s, Provident Funds, Trusts. s Secondary Market NSEWDM only formal trading platform (NEAT) Page 5 MindTree Consulting
Proprietary & Confidential
Indian Debt Market s Participants & Products in Debt Market Issuer Instrument
Maturity Investors Central Dated Securities 2-20 Years RBI,Banks,Insurance Co.,
PFs, Government MFs, PDs, Central T-Bills 91/364 days RBI,Banks,Insurance Co.,
PFs, Government MFs, PDs,Individuals State Dated Securities 5-10 Years
Banks,Insurance Co.,PFs. Government PSUs Bonds 5-10 Years Banks,Insurance
Co., PFs, MFs, PDs,Individuals, Corporates Corporates Debentures 1-12 Years
Banks, Mutual Funds, Corporates,Individuals Corporates, Commercial 3 months
to Banks, Mutual Funds, FI s, PDs paper 1 Year Corporates,Individuals Banks
Certificates of 3 months to Banks, Corporates Deposit 1 Year Page 6 MindTree
Consulting Proprietary & Confidential
7. Central Government Securities: Bonds s Long Term Borrowing s Developments
Auction Based Pricing Information Dissemination DVP NDS/CCIL/RTGS s Trends
in Volumes,Tenor,Yields Page 7 MindTree Consulting Proprietary & Confidential
8. Central Government Securities: Bonds s Primary Issuance Process Auction
based Enable Higher Auction Volumes Broadening participation Ensuring
efficiency s Types of Auctions Discriminatory / Uniform Price Auction Yield / Price
Based Auction s Particiapnts Banks, PFs, Insurance Co., PDs, MFs. s Costituent
SGL Account Page 8 MindTree Consulting Proprietary & Confidential
9. Central Government Securities: Bonds s Primary Dealers Introduced in 1995
and at present 19 Act as underwriters and market makers To Strengthen
Infrastructure To divest resposibilities of RBI To facilitate Open Market
Operations Eligibility s Satellite Dealers Second Tier in Trading and Distribution
Provide a retail outlet Page 9 MindTree Consulting Proprietary & Confidential
10. Central Government Securities: Bonds s Secondary Market Deemed to be
listed Telephonic Market NSE WDM SGL holders to report to PDO s Settlement
Delivery Vs Payment Negotiated Dealing System PDO debits/credits SGL and
Current Account Brokers Page 10 MindTree Consulting Proprietary &
Confidential

11. T - Bills s Short Term borrowing s Issued at discount s 91 / 364 Days T Bills s
Aboiltion of Ad Hoc T-Bills s Issuance Process through Auction Banks and PDs
Non Competitive Bids Calendar 91 days Weekly 250 Cr. Wednesday Thursday
364 days Fortnightly 750 Cr. Wednesday Thursday s Usually held till maturity s
5.5% of total secondary market Page 11 MindTree Consulting Proprietary &
Confidential
12. T-Bills s Cut off Yields Yield given Price= ((100-Price)*365/(Price*No.of days
to maturity) Price given Yield= 100/1+(yield%*(No.of days to maturity/365)) For
Example: A 182 day T-Bill auctioned on January 18 at a price of 95.510 would
have an implicit yield of 9.4280% computed as follows: ((100-95.510)*365)/
(95.510*182) Page 12 MindTree Consulting Proprietary & Confidential
13. State Government Bonds s Represent market borrowimg to finance GFD s
Currenrly at 13% of GFD s Averages about 12000 Cr. s 84000 Cr. Outstanding s
Managed by RBI, States upto 35% s Coupon fixed at 25 bps above Central
Government securities s PDs allowed to particiapte s SBI owns the largest chunk
s Low risk weight of 20% s State Government Guaranteed Bonds Page 13
MindTree Consulting Proprietary & Confidential
14. Call Money Markets s Short Term funds ranging from overnight funds to 14
days s Banks and PDs allowed to borrow/lend s UTI, FI s, MF s, Corporates
allowed to lend s Is around 32% of reserve requirements s Call Rates Deposit
mobilization of Banks, capital flows,CRR on supply side Tax outflows,Government
borrowing,Credit Off Take Page 14 MindTree Consulting Proprietary &
Confidential
15. Corporate Debt: Bonds s Bonds issued by PSU, FI, and Corporates s PSU
bonds can be taxable or taxfree s Issue Process Authority for the issue
Appointment of Debenture Trustees Offer Document Creation of DRR Account
Creation of charge Credit rating Listing Criteria on NSE WDM Form of Holding
Page 15 MindTree Consulting Proprietary & Confidential
16. Corporate Debt: Bonds s Issue management & Book building Managed by
cosortium of lead managers,co- managers,underwriters and brokers. Virtual
book building portal called debtonnet.com Investors indicate the amount at
different coupon rates or the amount at cut-off coupon rate Arrival of Cut-off
coupon rate Oversubscribed Page 16 MindTree Consulting Proprietary &
Confidential
17. Corporate Debt: Bonds s Terms of debenture Issue Face Value Price Credit
rating Deemed date of allotment Applicable interest rate Interest on application
money Interest payment Redemption Put/call option Lettr of Allotment and
Debenture Certificate Security Page 17 MindTree Consulting Proprietary &