Strengthening The Future Of Corporate Bonds

SEBI pushes for deepening of the market to fuel investments.

- Yagnesh Kansara

Finally, it seems “Achchhe Din” are ahead for the Indian corporate bond market (CBM). The capital market regulator Securities and Exchange Board of India (Sebi) has decided to put in place a framework for operationalisation of the market that Finance Minister Arun Jaitley had hinted in his 2018-19 budget speech. Jaitley had stated that “Sebi will also consider mandating, beginning with large corporates, to meet about one fourth of their financing needs from the debt market.”

India is an emerging market economy and has been facing a severe deficit in growth capital that is required for its all-round economic development, mostly for its infrastructure development. As per global infrastructure Outlook forecast published in the Economic Survey of 2017-18, around $4.5 trillion, (roughly ₹280.35 trillion) of infrastructure investment will be required by India till 2040 and the expected shortfall will be $526 billion (roughly around Rs 36.82 lakh crore).

This is why India needs a well-developed CBM, as it is beyond the means of the Indian banking sector to finance this huge amount, in form of risk capital to the Indian corporate sector for the development of country’s infrastructure network. It is beyond the reach of the banking sector primarily for two reasons. First, the money needed for the projects will be held for a long period and second, the infra-projects to be undertaken might prove to be risky bets for the banks. In such a scenario, a well-developed capital market can play the role of a savior.

Jayant Thakur, a Mumbai-based chartered accountant and securities law specialist, says, “A vibrant market for corporate bonds is a win-win situation, both for the corporate and the investors. Corporates can access the markets directly and possibly at a lower cost, while investors can acquire such bonds and possibly get higher returns on funds as compared to traditional instruments like fixed deposits.”