DL81 MAkkL1 The capital market comprises of equity market and debt market. Debt market is a market for the issuance, trading and settlement in debt securities of various types. It is also known as the bond, credit, or fixed income market. Debt securities are one of the most innovative and dynamic instruments evolved in the financial system ever since the inception of money. It is based on the concept of interest and time-value of money. Fixed Income securities personify the essence of innovation and transformation, which have fueled the explosive growth of the financial markets over the past few centuries .Fixed income securities can be issued by a wide range of organizations including the Central and State Governments, public bodies, statutory corporations, banks and institutions and corporate bodies. Debt secur|t|es offer one of the most attract|ve |nvestment opportun|t|es w|th regard to safety of |nvestments adequate ||qu|d|ty and f|ex|b|||ty |n structur|ng a portfo||o eas|er mon|tor|ng |ong term re||ab|||ty and decent returns 1hey are an essent|a| component of any portfo||o of f|nanc|a| and rea| assets whether |n the form of pure |nterestbear|ng bonds var|ed type of debt |nstruments or assetbacked mortgages and secur|t|zed |nstruments DL81 MAkkL1 IN INDIA Debt market has a |ong h|story |n Ind|a 1he Government Secur|t|es market dates back to 18S9 when the 8r|t|sh Government took over from the Last Ind|a Company there has been act|ve debt |ssu|ng by the government both before and after |ndependence Corporate 8onds ma|n|y debentures were be|ng |ssued by compan|es of good stand|ng |n the prewar and postwar years 1here was of course a dec||ne |n corporate bond |ssues |n the decades of s|xt|es and sevent|es fo||ow|ng the arr|va| of term |end|ng |nst|tut|ons who supp||ed the bu|k of the med|um and |ong term fund|ng requ|rements of the pr|vate sector 1he pub||c sector's |ong term fund|ng needs were met by the State
S1A1LMLN1 CI kC8LLM 1hough cap|ta| market has a |ong h|story |ts growth |s comparat|ve|y a recent phenomenon |n the wor|d even |n deve|oped countr|es W|th|n the cap|ta| market 1he deve|opment of the Debt market |s st||| poor Same trend |s seen |n the h|story of the cap|ta| market |n Ind|a Ind|an cap|ta| market began to f|our|sh on|y |n the |ast quarter of the 20 th century W|th|n the cap|ta| market of Ind|a one can see the deve|opment of equ|ty market and the under deve|opment of the Debt market In Ind|a the cap|ta| market |s often |dent|f|ed as the equ|ty market It shows the undeve|oped and |ns|gn|f|cant ro|e of the Debt market 1h|s study |s an attempt to ana|yze the reasons for the undeve|oped nature of the Debt market |n Ind|a |n the background of |ts h|story and features IMCk1ANCL CI 1nL S1UD The debt market plays significant role in the development of any economy. In India and in other countries the equity market has come down significantly from its peak in recent time. Many companies are considering option of raising capital through debt instead of equity, as investors are reluctant to put their money in equities at this point of time. But the problem with many economies like India is, it does not have developed debt market. Indian debt market is not as active as it is in other developed countries. In India most of the part of the debt market is made up of government securities and T-bills. Indian companies have hardly raised the capital through debt so far and even if they did then it is very less compared to the debt raised by government. There is need to find out what are the issues that can deter Indian companies to raise the capital through debt market and what are the possible solutions to overcome these problems. C8ILC1IVLS Io||ow|ng are the ma|n ob[ect|ve of the study O To find out the growth of the Indian debt market in the post liberalization period. O Lva|uat|on of ma[or |ssues of debt market O Lva|uat|on of ma[or reforms |n|t|ated |n the debt market O Comparat|ve ana|ys|s of the debt and the equ|ty market of Ind|a O Comparat|ve ana|ys|s of the debt market of Ind|a and USA
ML1nCDCLCG O Indian debt market and Indian equity market can be compared with the help oI comparative analysis. The developing Indian debt market and developed US debt market can also be compared with the help oI a comparative analysis. O Comparative analysis is the comparison oI the perIormance level oI an entity to the perIormance level oI other similar entity in the same area or to other similar area. O The research will use secondary data which can be collected Irom the various websites and articles and books. ComparaLlve analysls wlll be performed wlLh Lhe help of Lhe M|crosoft Lxce| LIMI1A1ICNS O s this study deals with the securitized debt, the most active non-securitized segment oI money market is excluded Irom the study. O s data on the various segment oI the debt market is not available beIore 1990s, this study is restricted to Indian debt market Irom 1990s to 2008.
kCLL AND S1kUC1UkL CI INDIAN DL81 MAkkL1 1he f|xed |ncome secur|t|es market or popu|ar|y known as debt market |s the ear||est of a|| secur|t|es market |n the wor|d I|nanc|a| market began w|th the f|xed |ncome secur|t|es market 1oday |t |s the |argest of a|| the f|nanc|a| market |n the wor|d It has very prom|nent ro|e the eff|c|ent funct|on|ng of the wor|d f|nanc|a| system and |n cata|yz|ng the econom|c growth of the nat|on nowever |n most As|an countr|es when compared to the debt market the equ|ty market expanded at a much faster speed Now debt markets are cons|dered an a|ternat|ve route for f|nanc|ng to bank|ng channe|s It p|ays very |mportant ro|e |n the deve|opment of economy It p|ays the fo||ow|ng ro|es O Lff|c|ent Mob|||zat|on and a||ocat|on of I|nanc|a| and other resources |n the economy O I|nanc|ng the deve|opment act|v|t|es of the government O 1ransm|tt|ng s|gna|s for the |mp|ementat|on of var|ous monetary and other po||c|es of the centra| bank of the country
O Iac|||tat|ng the eff|c|ent ||qu|d|ty management |n tune w|th the overa|| short term and |ong term ob[ect|ves of the econom|c p|ann|ng O Cpportun|ty for |nvestors to d|vers|fy the|r |nvestment portfo||o O n|gher ||qu|d|ty and contro| over cred|t O 8etter corporate governance O Improved transparency because of str|ngent d|sc|osure norms and aud|t|ng requ|rements O Less r|sk compared to the equ|ty markets encourag|ng |owr|sk |nvestments 1h|s |eads to |nf|ow of funds |n the economy O Increased funds for |mp|ementat|on of government deve|opment p|ans 1he government can ra|se funds at |ower costs by |ssu|ng government secur|t|es O Imp|ementat|on of a monetary po||cy O keduced ro|e of banks and po||t|ca| |ntervent|on |n use of funds as banks have to fo||ow norms |a|d down by the centra| bank #GULATO#S OF TH DBT MA#T The debt market in India is under the strict supervision and control of the #eserve Bank Of India and Securities and xchange Board of India 1. #eserve Bank of India (#BI) Government securities and issues by Banks, Institutions are regulated by the #BI. #ole of the #BI is to regulate the issue of Bank Notes and keeping of reserves with a view to securing monetary stability in India and generally to operate the currency and credit system of the country to its advantage. 2. Securities and xchange Board of India (SBI) The issue of non-government securities comprising basically the issues of Corporate Debt is regulated by SBI.
ISSULS CI DL81 MAkkL1 A8SLNCL CI CCMMCN 1kADING MLCnANISUM Desp|te |ncrease |n number of part|c|pants the debt market |s yet to graduate from a "negot|ated dea|" te|ephone market 1he markets wor|d over are sw|tch|ng from te|ephone trad|ng to screenbased techno|ogy wh|ch br|ngs |n |ncreased transparency |ncreased compet|t|on and eff|c|ent pr|ce d|scovery |mproves eff|c|ency of execut|on of trade and reduces costs for the p|ayers 1he market wou|d ga|n substant|a||y |n ||qu|d|ty and eff|c|ency |f the trad|ng framework of equ|ty market |s rep||cated |n the debt market a|so 1hat |s four key pr|nc|p|es anonym|ty pr|ce t|me pr|or|ty nat|onw|de market and sett|ement guarantee app|y to trad|ng of debt |nstruments 1he p|ayers share a common p|atform to buy or se|| secur|t|es Absence of any requ|rement to go through a common p|atform ||ke stock exchange |nduces some of the p|ayers to enter |nto nontransparent dea|s through the te|ephon|c market If these part|c|pants are requ|red to go through a screen based trad|ng on stock exchanges where an eff|c|ent and transparent pr|ce
d|scovery mechan|sm |s ava||ab|e w|th comp|ete aud|t tra|| of act|v|t|es a ||qu|d and v|brant secondary market for debt w||| be a rea||ty SL8I has taken the |n|t|at|ve |n th|s regard by proh|b|t|ng 'negot|ated dea|s' |n respect of ||sted corporate debt secur|t|es and prescr|b|ng that a|| such trades wou|d be executed on the bas|s of pr|ce and order match|ng mechan|sm of stock exchanges as |n case of equ|t|es S|m||ar prescr|pt|on |s needed |n respect of a|| other debt Instruments ISSULS kLLA1LD 1C CLLAkING AND SL11LLMLN1 Nat|onw|de c|ear|ng and Sett|ement k8I prov|des a 'Statutory Genera| Ledger (SGL)' account fac|||ty to |arge banks and I|nanc|a| Inst|tut|ons to ho|d the|r |nvestments |n Government Secur|t|es and treasury 8|||s |n 8ookentry form As a|| |nvestors do not have access to the SGL fac|||t|es they are a||owed to ho|d secur|t|es |n phys|ca| form or they may open an account w|th a Const|tuent SGL account w|th any ent|ty author|zed by the k8I for th|s purpose 1he k8I operates these accounts through var|ous ub||c Debt Cff|ces (DCs) |n each c|ty As the DCs |n var|ous |ocat|ons are not ||nked |nvestors can on|y execute transact|on w|th other |nvestors ho|d|ng accounts w|th the same DC Absence of a nat|onw|de c|ear|ng and sett|ement fac|||ty for |nvestors has prevented the f|ow of orders from a|| reg|ons |nto a s|ng|e order book thereby reduc|ng ||qu|d|ty 1he buyer ends up pay|ng a ||qu|d|ty prem|um for each transact|on It |s |mperat|ve that each |nvestor can ho|d and sett|e transact|on on a nat|onw|de bas|s |rrespect|ve of the |ocat|on of |ts account Nat|onw|de c|ear|ng and sett|ement |s the pr|mary requ|rement for creat|on of a reta|| order f|ow ISSULS CI S1AM DU1 CN 1kANSILk CI DL81 INS1kUMLN1S W|th a v|ew to modern|z|ng debt market and |ntroduc|ng paper|ess trad|ng |n th|s segment a|so the I|nance M|n|ster |n h|s 8udget Speech dated 27 th Iebruary 1999 announced abo||t|on of stamp duty on transfer of debt |nstruments w|th|n the depos|tory mode In order to operat|ona||se th|s proposa| the I|nance Act 1999 added the fo||ow|ng c|ause |n Sect|on 8A of the Ind|an Stamp Act "(f) transfer of benef|c|a| ownersh|p of debentures such debentures be|ng debentures of a company formed and reg|stered under the Compan|es Act 19S6 or a body corporate estab||shed by a Centra| Act dea|t w|th by a depos|tory sha|| not be ||ab|e to duty under Art|c|e 27 of Schedu|e I of th|s Act" ISSULS CI IUNDING CI IN1LkMLDIAkILS 1rad|t|ona||y brokers are the ma|n |ntermed|ary |n the secur|t|es market 1hey do not come forward to prov|de cont|nuous twoway pos|t|ons |n the market due to absence of any fund|ng mechan|sm for them 1he |aws perm|t a broker to obta|n work|ng cap|ta| |oan of on|y ks S0 |akh aga|nst the secur|t|es Ds and SDs who are the new entrants |n the market w|th s|m||ar funct|on of d|str|but|on and broad bas|ng the |nvestor base for debt secur|t|es have recourse to the ca|| money market as we|| as repo market to meet the|r temporary funds requ|rement 8rokers shou|d therefore be prov|ded f|nanc|a| support by encourag|ng banks to set up ||nes of cred|t |n favor of them aga|nst the|r ho|d|ng of government secur|t|es and other h|gh|y rated debt papers
1h|s w||| not on|y f|nance the |nventory of the Government and other e||g|b|e debt paper but the |nventory so bu||t up sha|| serve the purpose of co||atera| for the cred|t so ava||ed A|ternat|ve|y these brokers shou|d a|so be a||owed to part|c|pate |n the kepo market ISSULS kLLA1LD 1C kIVA1L LACLMLN1 1he conven|ence of structur|ng of the |ssues to match the needs of |ssuers w|th those of |nvestors coup|ed w|th sav|ngs |n terms of t|me and cost has contr|buted to rap|d growth of market for pr|vate p|acement Government keport of the Informa| Group on r|mary Market stresses the need for keep|ng th|s route a||ve s|nce |t he|ps to ra|se resources qu|ck|y and |nexpens|ve|y It |s however be||eved |n certa|n c|rc|es that pub||c |ssues are be|ng passed off |n the garb of pr|vate p|acement to avo|d comp||ance w|th str|ngent entry and d|sc|osure norms assoc|ated w|th pub||c |ssues 1h|s requ|res sub[ect|ng pr|vate p|acement to appropr|ate regu|atory d|sc|p||ne It cou|d be spec|f|ed that pr|vate p|acements resu|t|ng |n a||otments to more than a spec|f|ed number of peop|e say S0 or 100 wou|d be deemed as pub||c |ssues and be sub[ect to usua| d|sc|osure norms of SL8I In the a|ternat|ve the part|c|pat|on |n pr|vate p|acement cou|d be restr|cted to on|y know|edgeab|e |nvestors ||ke qua||f|ed |nst|tut|ona| |nvestors and h|gh networth |nd|v|dua|s 1hese cou|d a|so be traded among qua||f|ed |nst|tut|ona| |nvestors on C1CLI ISSULS kLLA1LD 1C ASSL1 8ASLD SLCUkI1I2A1ICN Secur|t|zat|on of assets |s a structured process whereby des|gnated poo|s of |oans or other rece|vab|es are packaged underwr|tten and so|d |n the form of f|nanc|a| |nstruments A typ|ca| secur|t|zat|on process |nvo|ves sa|e]transfer of the rece|vab|es from an organ|zat|on (the owner of assets) to an |ndependent ent|ty (trustee) or a spec|a| purpose veh|c|e (SV) wh|ch |n turn |ssues the f|nanc|a| |nstruments to |nvestors It offers an effect|ve and re|at|ve|y qu|ck and |ess cost|y a|ternat|ve fund|ng source Naras|mham Comm|ttee keport (II) has observed that there |s scope to h|ve off NA portfo||o from II books through secur|t|zat|on Secur|t|zat|on wou|d enab|e IIs fac|ng resource constra|nts to focus on the|r core competenc|es of fund|ng |nfrastructure products through gestat|on stage and subsequent|y secur|t|z|ng them rather than fund|ng them t||| matur|ty ISSULS kLLA1LD 1C kL1AIL Ak1ICIA1ICN Government secur|t|es are the safest |nvestment ava||ab|e to |nvestors 1hese offer returns comparab|e to that on bank depos|ts A number of measures have been |n|t|ated to deve|op reta|| market for Gsecs 1hese |nc|ude estab||shment of pr|mary and sate|||te dea|ers ||qu|d|ty support and other fac|||t|es to g||t funds |ntroduct|on of const|tuent SGL account fac|||ty a||ocat|on of S of the not|f|ed amount |n auct|ons for the reta|| segment |aunch of NDS and CCIL etc Investment |n Gsecs offers attract|ve benef|ts such as good y|e|ds no 1DS easy ||qu|d|ty no defau|t r|sk tax benef|ts under sect|on 80L w|de range of matur|t|es to su|t every ones need etc Desp|te a|| these the Gsec market |s exc|us|ve preserve of banks |nsurance compan|es prov|dent funds and trusts 1he reta|| segment wou|d get a boost |f there can be reta|| out|ets at conven|ent |ocat|on to fac|||tate d|str|but|on and trad|ng of sma|| |ots of Gsecs 1he reach of the stock exchanges can be advantageous|y used to reta|| G secs 1he |eve| of awareness about Gsecs needs to be
|mproved to make the |nvestors aware about the r|skreturn prof||e of Gsecs v|sv|s compet|ng products such as sma|| sav|ng |nstruments |nsurance schemes equ|t|es and debentures etc 1he househo|d |nvestment |n the government secur|t|es |s neg||g|b|e 1h|s |s on account of var|ous factors I|rst there |s an absence of awareness amongst the common pub||c as to mer|ts of the |nvestment |n a cred|tr|skfree sovere|gn paper Second there are compet|ng |nstruments such as sma|| sav|ngs |nstruments |nsurance schemes equ|ty and debentures wh|ch e|ther offer h|gher effect|ve returns or other benef|ts though the r|sk percept|ons of some of these |nstruments do not appear to bother the sma|| |nvestor 1h|rd the cumbersome sett|ement procedures and the |ack of reasonab|e ex|t route are not comfort|ng the sma|| |nvestor Iourth |nst|tut|ona| mechan|sm |n terms of agency serv|ces |s absent ISSULS kLLA1LD 1C UNkLALI2LD C1LN1IAL 1he government and the corporate sector have unconsc|ous|y kept the common |nvestor away from f|xed |ncome marketab|e |nstruments It |s |n the |nterest of both Government and the corporate sector to ent|ce the common |nvestors |nto the|r f|xed |ncome marketab|e |nstruments Government wou|d be ab|e to br|ng down |ts borrow|ng costs |f |t ra|ses funds d|rect|y from the common |nvestor 1he ex|st|ng tax sops g|ven to bank depos|ts may be extended to |nvestments |n government secur|t|es 1he |eve| of mandatory SLk may be gradua||y brought down so as to make the f|nanc|a| system more marketor|ented A network of underwr|ters brokers and subbrokers to d|str|bute government secur|t|es needs to be deve|oped 1he supp|y of good corporate bonds |s scarce espec|a||y for the common |nvestor Ind|an corporate ent|t|es have not yet shown enough |nterest to tap the reta|| markets through |ssue of bonds 1hey have been depend|ng on convent|ona| sources ||ke banks and f|nanc|a| |nst|tut|ons and the pr|vate p|acement market 1he y|e|ds they offer to these sources wou|d be equa||y attract|ve for common |nvestors Cnce the |nvestment act|v|ty p|cks |n the economy the costs of borrow|ng from these trad|t|ona| sources w||| go up 1hey shou|d try to tap the ma|n source of supp|y v|z the househo|d sector and benef|ts from the |ow cost d|s|nter med|ated funds Corporate ent|t|es w|th very good cred|t rat|ng w||| be ab|e to br|ng down the|r cost of borrow|ngs |f they tap the market d|rect|y W|th the recent amendment |n the Income 1ax Act appropr|at|ve stamp duty on transfer of ownersh|p of debt |nstruments has been abo||shed W|th the d|sappearance of phys|ca| secur|t|es hand||ng costs |n depos|tory mode has s|gn|f|cant|y reduced for the secondary market transact|ons 1he process of ownersh|p transfer |s a|so much safer and cheaper It does not requ|re great dea| of |nnovat|on to exp|o|t the secondary market |nfrastructure for the d|str|but|on of any depos|torybased secur|ty |nstrument 1he NSLs secondary market |nfrastructure wh|ch has now spread to more than 360 c|t|es can be effect|ve|y used for d|str|but|on of corporate debt paper
ISSULS kLAL1LD 1C kLGULA1Ck CLAkI1 1he po||cy makers have demonstrated the|r ser|ousness to deve|op the debt market 1hree ma[or steps taken |n th|s d|rect|on |n the recent past |e exempt|on of stamp duty on transfer of debt secur|t|es mandat|ng screen based trad|ng of debt secur|t|es and |n|t|at|ve to set up a c|ear|ng corporat|on for sett|ement of transact|ons |n government secur|t|es have ra|sed hopes among market part|c|pants It wou|d take about a year for fu|| rea||zat|on of the benef|ts from these measures nowever the debt market |s current|y regu|ated by a number of regu|atory author|t|es name|y k8I SL8I Department of Lconom|c Affa|rs and Department of company affa|rs It |s des|rab|e that there |s on|y one regu|atory author|ty |n the |nterest of effect|ve regu|at|on and deve|opment of the market #FO#MS IN TH DBT MA#T As an |ntegra| part of a comprehens|ve program of f|nanc|a| sector reform Ind|a's government secur|t|es market (GSM) has undergone a huge transformat|on s|nce 1991]92 1he ma|n ob[ect|ve of th|s act|ve debt management po||cy has been to moderate ||qu|d|ty growth conta|n |nf|at|onary pressure and conduct debt management |n a costeffect|ve manner Cons|der|ng Ind|a's macro management and m|cro market structure the deve|opments s|nce 1991]92 can be d|v|ded |nto two sub phases Dur|ng the f|rst sub phase (199196) reforms were eng|neered to fac|||tate "marketborrow|ng" w|th pr|ce d|scovery through auct|ons restr|ct automat|c monet|zat|on by f|x|ng a cap on the dur|ng theyear and endyear amount deve|op appropr|ate |nstruments keforms |n Government 8ond Market r|or to 1992 money was co||ected and |ent accord|ng to |an Lacunae |n |nst|tut|ona| |nfrastructure and |neff|c|ent market pract|ces character|zed the government secur|t|es market In fact the so|e ob[ect|ve pursued was to keep the cost of government borrow|ng as |ow as poss|b|e If p|ann|ng went awry the government sent word to |ts banker 1he centra| bank made a few phone ca||s to the heads of banks and bonds were |ssued and the money arranged No quest|ons asked no exp|anat|ons g|ven 1he GCI bond market d|d not use trad|ng on an exchange It featured b||atera| negot|at|on between dea|ers 1he market thus |acked pr|cet|me pr|or|ty and the b||atera| transact|ons |mposed counterparty cred|t r|sk on part|c|pants 1h|s narrowed down the market |nto a "c|ub" w|th homogeneous cred|t r|sk 1h|s was the state of the government debt market |n Ind|a ten years ago 1he debt market began tak|ng shape 1he |dea of the f|nanc|a| reform movement was to have more and more d|fferent markets and not necessar||y have who|e f|nanc|a| |ntermed|at|on |eft to the banks 1he reform process attempted at do|ng away w|th regu|at|ons |n favor of contro|s based on market forces |e an era where the |nterest rates are governed more by the market forces of demand and supp|y and |ess by centra||zed superv|s|on S|ow|y but stead||y the market grew add|ng fresh p|ayers and nove| |nstruments Severa| measures have added greater transparency and have brought the |ssuances c|oser to the market |eve|s
1he ma[or reforms that took p|ace |n the 1990's were O Introduction of the auction system for sale of dated government securities in 1une1992. This signaled the end of the era of administered interest rates. O The #BI moved to computerize the SGL and implement a form of a delivery versus payment` (DvP) system. The DvP enabled mitigating of settlement risk in securities and ensured the smoothness of settlement by synchronizing the payment and delivery of securities. O Innovative products in form of Zero Coupon Bonds and Capital Indexed Bonds (x. Inflation Linked) were issued to attract a wider gamut of investors. However, the pace of innovation suffered due to non-sophistication of the markets and lack of persistence with some of the new bonds like Inflation Indexed bonds after the initial lukewarm response. O The system of Primary Dealers was established in March 1995. These primary dealers have since then acquired a large chunk of share in the GOI bond market and have played the role of market makers. O The #BI setup ~trade for trade regime, a strong regulatory system which required that every trade must be settled with funds and bonds. All forms of netting were prohibited. O holesale Debt Market (DM) segment was set up at NS, A limited degree of transparency came about through the DM at NS, where roughly half the trading volume of India`s GOI bond market is reported. O The ays And Means agreement put an end to issuance of ad hoc treasury bills, the government`s favorite instrument of funding its profligacy. O Interest Income in G-Secs was exempted from the purview of TDS. O FIIs with 100 Debt Schemes were allowed to invest in GOI Securities and T- Bills while other FIIs were allowed 30 investment in these instruments. O Dematerialized forms of securities in G-Secs were done through the SGL and Constituents SGL accounts keforms |n Corporate 8ond Market O In the last decade, market related borrowings by the corporate sector have remained depressed as a plethora of Financial Institutions were available for disbursal of credit. These Institutions managed to mobilize a significant amount of domestic savings and route them for corporate consumption.
Also the reforms abolished the office of the Controller of Capital Issues (CCI), which meant that companies were free to price their equity issues as per the market appetite. This led to a slew of primary issue of equity and the relative attractiveness of issue of debt yielded way to equities. In fact, even debt issues were made with attached sweeteners like convertible portion of the fixed income instrument. In addition, several relaxations in regulations post 1992 have encouraged Indian corporate to raise debt
from overseas capital markets leading to further shunning of the domestic debt market by creditworthy issuers. Therefore, the corporate debt market in India has continued to be dominated by the PSU`s. O In the recent past, the corporate debt market has seen high growth of innovative asset-backed securities. The servicing of debt and related obligations for such instruments is backed by some sort of financial assets and/or credit support from a third party. Over the years greater innovation has been witnessed in the corporate bond issuances, like floating rate instruments, zero coupon bonds, convertible bonds, callable (put-able) bonds and step-redemption bonds. For example, step bonds issued by ICICI in 1998, paid progressively higher rates of interest as the maturity approached while the IDBI`s step bond was issued with a feature to pay out the redemption amount in installments after an initial holding period. The deep discount bond issued by IDBI in the same year had two put and call options before maturity. O hat these innovative issues have done is that they have provided a gamut of securities that caters to wider segment of investors in terms of maintaining a desirable risk-return balance. Over the last five years, corporate issuers have shown a distinct preference for private placements over public issues. This has further cramped the liquidity in the market. hile private placement has grown 6.23 times to #s. 62461.80 cores in 2000-2001 since 1995-96, the corresponding increase in public issues of debt has been merely 40.95 percent from the 1995-96 levels. Ind|a Debt market Vs Ind|an Lqu|ty market In many countr|es debt market |s |arger than equ|ty markets In fact |n matured econom|es debt market |s three t|mes the s|ze of the equ|ty market Ind|an debt market has grown stead||y |n |ast 1S20 years but st||| Ind|an debt market's market cap|ta||zat|on |s not even the ha|f of the equ|ty market's market cap|ta||zat|on (200910)
1ab|e 1 Market cap|ta||zat|on of debt and equ|ty market (Ind|a) NSL ear Market Cap of Debt (ksCr) Market Cap Cf Lqu|ty (ksCr) 1994199S 1S8181 3633S0 199S1996 207783 4014S9 19961997 292772 419367 19971998 343191 481S03 19981999 411470 49117S 19992000 494033 1020426 20002001 S8083S 6S7847 20012002 7S6794 636861 20022003 864481 S37133 20032004 121S864 1120976 2004200S 1461734 1S8SS8S 200S2006 1S67S74 2813201 20062007 1784801 33673S0 20072008 2123346 48S8122 2008 2009 284831S 2896194 2009 2010 316S929 6009173 (Source Nat|ona| stock exchange) k8I and SL8I have taken many reforms |n |ast decade to make the debt market more attract|ve for |nvestors 8ut st||| there are many regu|atory hurd|es wh|ch prevent debt market to grow and become more act|ve
O Government securities and Treasury bills dominates the debt market. Corporate/Non government debt securities make very less portion of debt market. One of the reasons why corporate are not issuing debt securities is regulatory requirements and less active secondary market. O Turnover in the secondary market is also big concern. It has grown over a period of time but still it is not enough to term the Indian debt market as active. 1ab|e 3 58||||ons Cutstand|ng US bond market debt ear Mun|c|pa| 1reasury Mortgage based corporate debt Iedera| secur|t|es Asset backed 1ota| 1991 12722 24716 16369 14S47 4428 1299 74081 1992 13028 27S41 19370 1SS70 4840 1637 81986 1993 1377S 2989S 21447 16747 S707 1999 89S70 1994 13417 31260 22S17 17SS6 7389 2S73 94712 199S 1293S 33072 23S21 1937S 8446 3163 100S12 1996 12960 34S97 24861 2126S 92S8 4044 10698S 1997 13187 34S68 26802 23S90 10226 S3S8 113731 1998 14029 33SSS 29SS2 27080 13006 731S 124S37 1999 14S72 32810 33342 3046S 16200 9008 136397 2000 14807 29669 3S6S8 33S84 18S46 10718 142982 2001 1603S 2967S 41276 38364 21496 12811 1S96S7 2002 17629 32049 46864 40996 22928 1S433 17S899 2003 1900S 3S749 S2386 44S94 26367 16937 19S038 2004 20310 39436 S4SS8 478S1 274S1 18278 207884
2009 2801S 7601S 9187S 68499 97279 24290 31607 (Sourcesecur|t|es |ndustry and I|nanc|a| market Assoc|at|on) O If we compare Indian debt market with US debt market, then India`s total debt outstanding is very less compared to US. This shows that Indian companies and corporate do not prefer to raise money through debt. The annual average trading volume in the secondary debt market in India is less than the daily average trading volume in the secondary debt market of the US. #COMMNDATION From the above study I suggest the following recommendations to make Indian debt market more efficient and active. O keduce the d|rect ro|e of government |n the determ|nat|on of |nterest rates by estab||sh|ng an |ndependent pub||c debt off|ce funct|on O keduce the d|rect ro|e of government as owner of f|nanc|a| |nst|tut|ons to perm|t the deve|opment of a greater d|vers|ty of v|ews |n |nvestment dec|s|ons O kemove restr|ct|ons on |nvestment dec|s|on mak|ng by |nst|tut|ona| |nvestors (such as pens|on funds and ||fe |nsurers) and max|m|ze outsourc|ng of |nvestment dec|s|ons and treasury funct|ons to profess|ona| fund managers O Inst|tute changes to support a system of proper|y funded and |ndependent|y managed pens|on schemes O S|mp||fy pub||c |ssuance procedures standard|ze and regu|ar|ze pr|vate p|acemement documentat|on to |mprove access to the market by reta|| |nvestors O kemove |mped|ments to the |nteract|on of the |nst|tut|ona| and reta|| market by ensur|ng that banks can access stock exchanges on beha|f of the|r customers O Improve posttrade transparency on secondary debt markets to perm|t eff|c|ent pr|ce d|scovery and thus encourage w|der part|c|pat|on |n the market O Invo|ve the market more forma||y |n dec|s|ons on des|gn of f|nanc|a| |nfrastructure pro[ects
I|nd|ng Debt secur|t|es offer one of the most attract|ve |nvestment opportun|t|es w|th regards to safety of |nvestment adequate ||qu|d|ty and f|ex|b|||ty |n structur|ng a portfo||o eas|er mon|tor|ng |ong term re||ab|||ty and decent return Debt secur|t|es has very prom|nent ro|e |n the eff|c|ent funct|on|ng of the wor|d f|nanc|a| system and |n cata|yz|ng the econom|c growth of the nat|on When compare to the equ|ty market and debt market equ|ty market has grown faster than debt market and |t |s more vo|at||e than debt market When compare to the US debt market and Ind|an debt market we can say that US debt market |s |arger than Ind|an debt market #F#NCS 1. Ajay Shah and Susan Thomas (28 th August, 2001), ~The evolution of securities market in India in the 1990s. 2. Dr. Y.V.#eddy, Governor, #BI (18 th October, 2007), ~Developing Debt Markets in India: #eview and Prospects, Speech at ashington, USA. 3. Pronab Sen, Nikhil Bahel and Shikhar #anjan (1uly 2003), ~Developing the Indian debt Capital market: Small Investors Perspectives, working paper. 4. C. #. L. Narasimhan (10 th December, 2007), ~The time has come for corporate bond market, The Hindu. 5. Andy Mukherjee (31 st October, 2007), ~Viewpoint: eak bond market hampers India, International-Herald Tribune. 6. Nikhil alavalkar (31 st December, 2006), ~Debt Instruments: hat 2007 holds, The Financial xpress. 7. Deepak Mittal (2002), ~The Development of Bond Market in India, Dhan`- quarterly magazine, Finance and Investment club, IIM-C. 8. SIFMA: #esearch report` (Feb, 2008) published by Securities Industries and Financial market Association. 9. Indian security market: A review-1999` published by National stock exchange of India Ltd. 10.Indian security market: A review-2000` published by National stock exchange of India Ltd. 11.Indian security market: A review-2001` published by National stock exchange of India Ltd. 12.Indian security market: A review-2002` published by National stock exchange of India Ltd. 13.Indian security market: A review-2003` published by National stock exchange of India Ltd.
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