Recently, there was a piece of news, Stock Exchange Board of India (SEBI) wants corporate bonds to be traded on stock exchanges just like the other stocks and government securities. Now the question arising here is; Why SEBI thought so? or Is it going to be a positive strategy for corporate bonds? Before answering the question, let’s first have a small glimpse on importance, present market scenario and challenges faced by the corporate bonds.
A highly developed corporate bond market supports economic development as it is an alternative source of long-term finance to meet the financing requirement of industry & Infrastructure sector.
The corporate bond market in India is relatively less developed not only from developed economies but also from some of the developing countries such as Malaysia, South Korea, Brazil and Turkey. In India, the corporate debt to GDP ratio (17.16%) is significantly lower than in above-mentioned countries (Figure 1).
Development of the corporate debt market in India faces many hindrances, the prominent ones illiquidity in the secondary market due to its low primary issuance, issuance costs are high, narrow investor base, highly fragmented as more than 90% of its issuance is through private placements, lack of debt market accessibility to SMEs and excessive regulatory restrictions as there are multiple regulators.
Now, answering the above question, knowing the importance of corporate bond, it can be said that there is a need for a lot of initiatives to bring it to a global standard. To achieve higher GDP growth, massive future growth of infrastructure is required and it can be ensured only through the availability of long- term financing at a lower cost. Being corporate bond as an alternative for long term finance, SEBI’s big to push corporate bonds is likely going to be a great and positive move.
Author: Anuradha Department of Economic Studies and Policy Central University of South Bihar