Monday, April 8, 2013

The Indian bond market is highly illiquid and underdeveloped. Development of bond market is very important for any economy. Bonds offer more transparent, traded alternatives to debts made in the form of traditional loans. So, it is puzzling why, despite so many committees and regulatory focus, India has had such difficulty in deepening its bond markets. Corporate bonds account for only about 4% of the country's GDP. Compare this with 70% in the US or 49% in South Korea. Moreover, there is hardly any secondary market.

In order to rectify this situation, the Finance Ministry, Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI) have come up with an initiative to activate the dormant corporate bond market. For the first time, India's top banks, insurance companies, pension funds, mutual funds and small investors will be allowed to trade in corporate bonds and government securities (G-Sec). This will be done under a dedicated debt segment to be launched by the stock exchanges shortly. Till now, retail investors were clueless about where to buy G-Sec. This facility will help to solve that problem. This is easily one of the biggest initiatives taken by Indian financial regulators to develop the bond market. We certainly hope for the timely implementation of this initiative. It will go a long way in deepening the bond market in the country.