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This document provides information about the bond market in India, including definitions and key terms. It discusses the primary and secondary bond markets. It also describes the various types of bonds traded in the Indian market, including government bonds, municipal bonds, zero coupon bonds, junk bonds, and tax saving bonds. Several types of government bonds are explained in depth, such as treasury bills, cash management bills, and dated government securities. The rates, issuance, and characteristics of these different bonds are summarized.
This document provides information about the bond market in India, including definitions and key terms. It discusses the primary and secondary bond markets. It also describes the various types of bonds traded in the Indian market, including government bonds, municipal bonds, zero coupon bonds, junk bonds, and tax saving bonds. Several types of government bonds are explained in depth, such as treasury bills, cash management bills, and dated government securities. The rates, issuance, and characteristics of these different bonds are summarized.
This document provides information about the bond market in India, including definitions and key terms. It discusses the primary and secondary bond markets. It also describes the various types of bonds traded in the Indian market, including government bonds, municipal bonds, zero coupon bonds, junk bonds, and tax saving bonds. Several types of government bonds are explained in depth, such as treasury bills, cash management bills, and dated government securities. The rates, issuance, and characteristics of these different bonds are summarized.
KALPESH THOMBARE 167 SANOBER Z. VAID 172 GIRISH WADEKAR 176 PUNIT BHANUSHALI
Bond Market Definition The environment in which the issuance and trading of debt securities occurs. The bond market primarily includes government-issued securities and corporate debt securities, and facilitates the transfer of capital from savers to the issuers or organizations requiring capital for government projects, business expansions and ongoing operations. Most trading in the bond market occurs over-the-counter, through organized electronic trading networks, and is composed of the primary market (through which debt securities are issued and sold by borrowers to lenders) and the secondary market (through which investors buy and sell previously issued debt securities amongst themselves). Although the stock market often commands more media attention, the bond market is actually many times bigger and is vital to the ongoing operation of the public and private sector.
Types of Bonds in Indian Bond Market 1. Government Bonds 2. Municipal Bond 3. Zero Coupon Bond 4. Junk Bond 5. Tax Saving Bond Government Security / Bond A Government security is a tradable instrument issued by the Central Government or the State Governments. It acknowledges the Governments debt obligation. Such securities are short term (usually called treasury bills, with original maturities of less than one year) or long term (usually called Government bonds or dated securities with original maturity of one year or more). In India, the Central Government issues both, treasury bills and bonds or dated securities while the State Governments issue only bonds or dated securities, which are called the State Development Loans (SDLs). Government securities carry practically no risk of default and, hence, are called risk-free gilt-edged instruments. Government of India also issues savings instruments (Savings Bonds, National Saving Certificates (NSCs), etc.) or special securities (oil bonds, Food Corporation of India bonds, fertiliser bonds, power bonds, etc.). They are, usually not fully tradable and are, therefore, not eligible to be SLR securities. Types of Government Securities 1. Treasury Bills (T-bills) 2. Cash Management Bills (CMBs) 3. Dated Government Securities 4. Treasury Bill (T- Bills) Treasury bills or T-bills, which are money market instruments, are short term debt instruments issued by the Government of India and are presently issued in three tenors, namely, 91 day, 182 day and 364 day. Treasury bills are zero coupon securities and pay no interest. They are issued at a discount and redeemed at the face value at maturity. For example, a 91 day Treasury bill of Rs.100/- (face value) may be issued at say Rs. 98.20, that is, at a discount of say, Rs.1.80 and would be redeemed at the face value of Rs.100/-. The return to the investors is the difference between the maturity value or the face value (that is Rs.100) and the issue price (for calculation of yield on Treasury Bills please see answer to question no. 26). The Reserve Bank of India conducts auctions usually every Wednesday to issue T-bills. Payments for the T-bills purchased are made on the following Friday. The 91 day T-bills are auctioned on every Wednesday. The Treasury bills of 182 days and 364 days tenure are auctioned on alternate Wednesdays. T-bills of of 364 days tenure are auctioned on the Wednesday preceding the reporting Friday while 182 T-bills are auctioned on the Wednesday prior to a non-reporting Fridays. The Reserve Bank releases an annual calendar of T-bill issuances for a financial year in the last week of March of the previous financial year. The Reserve Bank of India announces the issue details of T-bills through a press release every week.
Cash Management Bills (CMBs) Government of India, in consultation with the Reserve Bank of India, has decided to issue a new short-term instrument, known as Cash Management Bills (CMBs), to meet the temporary mismatches in the cash flow of the Government. The CMBs have the generic character of T- bills but are issued for maturities less than 91 days. Like T-bills, they are also issued at a discount and redeemed at face value at maturity. The tenure, notified amount and date of issue of the CMBs depends upon the temporary cash requirement of the Government. The announcement of their auction is made by Reserve Bank of India through a Press Release which will be issued one day prior to the date of auction. The settlement of the auction is on T+1 basis. The non-competitive bidding scheme (referred to in paragraph number 4.3 and 4.4 under question No. 4) has not been extended to the CMBs. However, these instruments are tradable and qualify for ready forward facility. Investment in CMBs is also reckoned as an eligible investment in Government securities by banks for SLR purpose under Section 24 of the Banking Regulation Act, 1949. First set of CMBs were issued on May 12, 2010.
Dated Government Securities Dated Government securities are long term securities and carry a fixed or floating coupon (interest rate) which is paid on the face value, payable at fixed time periods (usually half- yearly). The tenor of dated securities can be up to 30 years. The Public Debt Office (PDO) of the Reserve Bank of India acts as the registry / depository of Government securities and deals with the issue, interest payment and repayment of principal at maturity. Most of the dated securities are fixed coupon securities. The nomenclature of a typical dated fixed coupon Government security contains the following features - coupon, name of the issuer, maturity and face value. For example, 7.49% GS 2017 would mean: Coupon : 7.49% paid on face value Name of Issuer : Government of India Date of Issue : April 16, 2007 Maturity : April 16, 2017 Coupon Payment Dates : Half-yearly (October 16 and April 16) every year Minimum Amount of issue/ sale : Rs.10,000 In case there are two securities with the same coupon and are maturing in the same year, then one of the securities will have the month attached as suffix in the nomenclature. For example, 6.05% GS 2019 FEB, would mean that Government security having coupon 6.05 % that mature in February 2019 along with the other security with the same coupon, namely,, 6.05% 2019 which is maturing in June 2019. State Development Loans (SDLs) State Governments also raise loans from the market. SDLs are dated securities issued through an auction similar to the auctions conducted for dated securities issued by the Central Government (see question 3 below). Interest is serviced at half-yearly intervals and the principal is repaid on the maturity date. Like dated securities issued by the Central Government, SDLs issued by the State Governments qualify for SLR. They are also eligible as collaterals for borrowing through market repo as well as borrowing by eligible entities from the RBI under the Liquidity Adjustment Facility (LAF).
Instruments: Fixed Rate Bonds These are bonds on which the coupon rate is fixed for the entire life of the bond. Most Government bonds are issued as fixed rate bonds. For example 8.24%GS2018 was issued on April 22, 2008 for a tenor of 10 years maturing on April 22, 2018. Coupon on this security will be paid half-yearly at 4.12% (half yearly payment being the half of the annual coupon of 8.24%) of the face value on October 22 and April 22 of each year. Floating Rate Bonds Floating Rate Bonds are securities which do not have a fixed coupon rate. The coupon is re- set at pre-announced intervals (say, every six months or one year) by adding a spread over a base rate. In the case of most floating rate bonds issued by the Government of India so far,the base rate is the weighted average cut-off yield of the last three 364- day Treasury Bill auctions preceding the coupon re-set date and the spread is decided through the auction. Floating Rate Bonds were first issued in September 1995 in India. For example, a Floating Rate Bond was issued on July 2, 2002 for a tenor of 15 years, thus maturing on July 2, 2017. The base rate on the bond for the coupon payments was fixed at 6.50% being the weighted average rate of implicit yield on 364-day Treasury Bills during the preceding six auctions. In the bond auction, a cut-off spread (markup over the benchmark rate) of 34 basis points (0.34%) was decided. Hence the coupon for the first six months was fixed at 6.84%. Zero Coupon Bond Zero coupon bonds are bonds with no coupon payments. Like Treasury Bills, they are issued at a discount to the face value. The Government of India issued such securities in the nineties, It has not issued zero coupon bond after that. Capital Indexed Bonds These are bonds, the principal of which is linked to an accepted index of inflation with a view to protecting the holder from inflation. A capital indexed bond, with the principal hedged against inflation, was issued in December 1997. These bonds matured in 2002. The government is currently working on a fresh issuance of Inflation Indexed Bonds wherein payment of both, the coupon and the principal on the bonds, will be linked to an Inflation Index (Wholesale Price Index). In the proposed structure, the principal will be indexed and the coupon will be calculated on the indexed principal. In order to provide the holders protection against actual inflation, the final WPI will be used for indexation. Bonds with Call/ Put Options Bonds can also be issued with features of optionality wherein the issuer can have the option to buy-back (call option) or the investor can have the option to sell the bond (put option) to the issuer during the currency of the bond. 6.72%GS2012 was issued on July 18, 2002 for a maturity of 10 years maturing on July 18, 2012. The optionality on the bond could be exercised after completion of five years tenure from the date of issuance on any coupon date falling thereafter. The Government has the right to buyback the bond (call option) at par value (equal to the face value) while the investor has the right to sell the bond (put option) to the Government at par value at the time of any of the half-yearly coupon dates starting from July 18, 2007.
STRIPS (Separate Trading of Registered Interest and Principal of Securities) Accordingly, guidelines for stripping and reconstitution of Government securities have been issued. STRIPS are instruments wherein each cash flow of the fixed coupon security is converted into a separate tradable Zero Coupon Bond and traded. For example, when Rs.100 of the 8.24%GS2018 is stripped, each cash flow of coupon (Rs.4.12 each half year) will become coupon STRIP and the principal payment (Rs.100 at maturity) will become a principal STRIP. These cash flows are traded separately as independent securities in the secondary market. STRIPS in Government securities will ensure availability of sovereign zero coupon bonds, which will facilitate the development of a market determined zero coupon yield curve (ZCYC). STRIPS will also provide institutional investors with an additional instrument for their asset- liability management. Further, as STRIPS have zero reinvestment risk, being zero coupon bonds, they can be attractive to retail/non-institutional investors. The process of stripping/reconstitution of Government securities is carried out at RBI, Public Debt Office (PDO) in the PDO-NDS (Negotiated Dealing System) at the option of the holder at any time from the date of issuance of a Government security till its maturity. All dated Government securities, other than floating rate bonds, having coupon payment dates on 2nd January and 2nd July, irrespective of the year of maturity are eligible for Stripping/Reconstitution. Eligible Government securities held in the Subsidiary General Leger (SGL)/Constituent Subsidiary General Ledger (CSGL) accounts maintained at the PDO, RBI, Mumbai. Physical securities shall not be eligible for stripping/reconstitution. Minimum amount of securities that needs to be submitted for stripping/reconstitution will be Rs. 1 crore (Face Value) and multiples thereof.
Various Reasons For Investing in Government Securities Holding of cash in excess of the day-to-day needs of a bank does not give any return to it. Investment in gold has attendant problems in regard to appraising its purity, valuation, safe custody, etc. Investing in Government securities has the following advantages: Besides providing a return in the form of coupons (interest), Government securities offer the maximum safety as they carry the Sovereigns commitment for payment of interest and repayment of principal. They can be held in book entry, i.e., dematerialized/ scripless form, thus, obviating the need for safekeeping. Government securities are available in a wide range of maturities from 91 days to as long as 30 years to suit the duration of a bank's liabilities. Government securities can be sold easily in the secondary market to meet cash requirements. Government securities can also be used as collateral to borrow funds in the repo market. The settlement system for trading in Government securities, which is based on Delivery versus Payment (DvP), is a very simple, safe and efficient system of settlement. The DvP mechanism ensures transfer of securities by the seller of securities simultaneously with transfer of funds from the buyer of the securities, thereby mitigating the settlement risk. Government security prices are readily available due to a liquid and active secondary market and a transparent price dissemination mechanism. Besides banks, insurance companies and other large investors, smaller investors like Co-operative banks, Regional Rural Banks, Provident Funds are also required to hold Government securities.
Settlement Of Government Security Transactions Primary Market Once the allotment process in the primary auction is finalized, the successful participants are advised of the consideration amounts that they need to pay to the Government on settlement day. The settlement cycle for dated security auction is T+1, whereas for that of Treasury bill auction is T+2. On the settlement date, the fund accounts of the participants are debited by their respective consideration amounts and their securities accounts (SGL accounts) are credited with the amount of securities that they were allotted. Secondary Market The transactions relating to Government securities are settled through the members securities / current accounts maintained with the RBI, with delivery of securities and payment of funds being done on a net basis. The Clearing Corporation of India Limited (CCIL) guarantees settlement of trades on the settlement date by becoming a central counter-party to every trade through the process of novation, i.e., it becomes seller to the buyer and buyer to the seller. All outright secondary market transactions in Government Securities are settled on T+1 basis. However, in case of repo transactions in Government securities, the market participants will have the choice of settling the first leg on either T+0 basis or T+1 basis as per their requirement. Calculations involved in Bond Prices & Yields Time Value of Money Money has time value as a Rupee today is more valuable and useful than a Rupee a year later. The concept of time value of money is based on the premise that an investor prefers to receive a payment of a fixed amount of money today, rather than an equal amount in the future, all else being equal. In particular, if one receives the payment today, one can then earn interest on the money until that specified future date. Further, in an inflationary environment, a Rupee today will have greater purchasing power than after a year. Present value of a future sum The present value formula is the core formula for the time value of money. The present value (PV) formula has four variables, each of which can be solved for: Present Value (PV) is the value at time=0 Future Value (FV) is the value at time=n i is the rate at which the amount will be compounded each period n is the number of periods
An illustration Taking the cash flows as; Period (in Yrs) 1 2 3 Amount 100 100 100
Assuming that the interest rate is at 10% per annum; The discount factor for each year can be calculated as 1/(1+interest rate)^no. of years The present value can then be worked out as Amount x discount factor The PV of Rs.100 accruing after; Year Amount discount factor P.V. 1 100 0.9091 90.91 2 100 0.8264 82.64 3 100 0.7513 75.13 The cumulative present value = 90.91+82.64+75.13 = Rs.248.69 Net Present Value (NPV) Net present value (NPV) or net present worth (NPW) is defined as the present value of net cash flows. It is a standard method for using the time value of money to appraise long-term projects. Used for capital budgeting, and widely throughout economics, it measures the excess or shortfall of cash flows, in present value (PV) terms, once financing charges are met. Each cash inflow/outflow is discounted back to its present value (PV). Then they are summed. Therefore
Yield of a Treasury Bill It is calculated as per the following formula
P Purchase price D Days to maturity Day Count: For Treasury Bills, D = [actual number of days to maturity/365] Relationship between Yield and Price of a bond If interest rates or market yields rise, the price of a bond falls. Conversely, if interest rates or market yields decline, the price of the bond rises. In other words, the yield of a bond is inversely related to its price. The relationship between yield to maturity and coupon rate of bond may be stated as follows: When the market price of the bond is less than the face value, i.e., the bond sells at a discount, YTM > current yield > coupon yield. When the market price of the bond is more than its face value, i.e., the bond sells at a premium, coupon yield > current yield > YTM. When the market price of the bond is equal to its face value, i.e., the bond sells at par, YTM = current yield = coupon yield. Risks involved in holding Government securities & techniques for mitigating such risks Government securities are generally referred to as risk free instrumentsas sovereigns are not expected to default on their payments. However, as is the case with any financial instrument, there are risks associated with holding the Government securities. Hence, it is important to identify and understand such risks and take appropriate measures for mitigation of the same. The following are the major risks associated with holding Government securities. Market risk Market risk arises out of adverse movement of prices of the securities that are held by an investor due to changes in interest rates. This will result in booking losses on marking to market or realizing a loss if the securities are sold at the adverse prices. Small investors, to some extent, can mitigate market risk by holding the bonds till maturity so that they can realize the yield at which the securities were actually bought. Reinvestment risk Cash flows on a Government security includes fixed coupon every half year and repayment of principal at maturity. These cash flows need to be reinvested whenever they are paid. Hence there is a risk that the investor may not be able to reinvest these proceeds at profitable rates due to changes in interest rate scenario. Liquidity risk Liquidity risk refers to the inability of an investor to liquidate (sell) his holdings due to non availability of buyers for the security, i.e., no trading activity in that particular security. Usually, when a liquid bond of fixed maturity is bought, its tenor gets reduced due to time decay. For example, a 10 year security will become 8 year security after 2 years due to which it may become illiquid. Due to illiquidity, the investor may need to sell at adverse prices in case of urgent funds requirement. However, in such cases, eligible investors can participate in market repo and borrow the money against the collateral of the securities.
Risk Mitigation Holding securities till maturity could be a strategy through which one could avoid market risk. Rebalancing the portfolio wherein the securities are sold once they become short term and new securities of longer tenor are bought could be followed to manage the portfolio risk. However, rebalancing involves transaction and other costs and hence needs to be used judiciously. Market risk and reinvestment risk could also be managed through Asset Liability Management (ALM) by matching the cash flows with liabilities. ALM could also be undertaken by matching the duration of the cash flows. Advanced risk management techniques involve use of derivatives like Interest Rate Swaps (IRS) through which the nature of cash flows could be altered. However, these are complex instruments requiring advanced level of expertise for proper understanding. Adequate caution, therefore, need to be observed for undertaking the derivatives transactions and such transactions should be undertaken only after having complete understanding of the associated risks and complexities.
CORPORATE BONDS A debt security issued by a corporation and sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations. In some cases, the company's physical assets may be used as collateral for bonds. Corporate bonds are considered higher risk than government bonds. As a result, interest rates are almost always higher, even for top-flight credit quality companies. Corporate bonds, i.e. debt financing, are a major source of capital for many businesses along with equity and bank loans/lines of credit. Generally speaking, a company needs to have some consistent earnings potential to be able to offer debt securities to the public at a favourable coupon rate. The higher a company's perceived credit quality, the easier it becomes to issue debt at low rates and issue higher amounts of debt.
Most corporate bonds are taxable with terms of more than one year. Corporate debt that matures in less than one year is typically called "commercial paper".
Types of Corporate Bonds Fixed Rate Bond / Straight Bond / Plain Vanilla Bond: This is the most popular type of corporate bond traded in most of the markets, paying a semi annual but fixed coupon over their life and the principal at the end of the maturity. Floating Rate Bond / Floater: These are the bonds, even if the coupon of which are usually paid semiannually, the coupon rate is not fixed throughout the life and varies over time with reference to some benchmark rate. These types of bonds may have some Floor or Cap attached on it, representing that even if the benchmark rate change by any value, the coupon rate even if floating but will always lies within the range of Floor and Cap rate. Some of the well known benchmark rates used in Indian market are MIBOR, Call Rate, T-bill rate, PLR, etc. Zero Coupon Bond: Zero Coupon Bonds (ZCBs) are issued at a discount to their face value and the principal/face value is repaid to the holders at the time of maturity. Instead of paying any periodic coupons, the ZCB holder gets the price discount in the beginning itself. Therefore, ZCBs are alternatively known as Deep Discount Bonds.
Bond with Embedded Option: Bond may have an option (Call or Put) embedded in it, giving certain rights to investors and / or issuers. The more common types of bonds with embedded options are: Callable bond, Puttable bond, and Convertible bond. Callable bond gives the issuer the right to redeem or buy back them prematurely on certain terms. The call option can be an American or a European option. The purpose of such option is to reduce the cost of issuer in the regime of falling interest rates. On the other hand, Puttable bond gives investor the right to prematurely sell them back to the issuer on certain predefined terms. Puttable bond safeguard the interest of bond holders when interest rates rises in the market. Convertible bonds, alternatively known as Hybrid Securities, give bond holder the right to convert them into equity shares on certain terms. Such bond can be fully or partly convertible. In case of partly convertible, investors are offered equity shares for the part which is redeemed and the other part remains as a bond.
Tax-Savings Infrastructure Bonds: In order to facilitate infrastructure financing through the bond route, some special types of tax-free bonds, issued by some infrastructure companies, are offered to the investors.
Debentures: Debentures are also fixed interest debt instruments with different maturity, but is usually secured in nature and therefore offers lower interest comparative to bonds. Debentures, based on their convertibility to the form of equity, can be of three types: Non- Convertible (NCD), Partially Convertible (PCD), and Fully Convertible Debenture (FCD).
Foreign Currency Convertible Bonds (FCCB): In order to raise money in foreign currency, corporates may issue certain bonds in currencies different from the issuers domestic currency, retaining all features of a convertible bond. Several Multinational corporations tap the foreign bond markets by issuing FCCBs which are quasi-debt instruments and tradable in stock exchanges. FCCBs are attractive to both Issuers and Investors. Investors get the safety of guaranteed payments on the bonds and are also able to take advantage of any price appreciation in the companys stock. FCCBs may also carry an option feature (Call or Put) and normally offer an interest (if any) lower than a normal debt paper or foreign currency loans or External Commercial Borrowings (ECBs). FCCBs have been extremely popular with Indian corporate for raising foreign funds at competitive rates.
Municipal Bonds: Municipal bonds are debt obligations, issued by States, Cities and other Government Bodies, to meet the financial requirement of any Public Infrastructural projects like School building, Highways, Hospitals, Sewage systems etc. Interest of such bond is paid through the revenue generated from the business that backs the obligation. These types of bonds, even if very popular in developed economies like US, are hardly issued in India.
Perpetual Bonds: Perpetual bonds, having no specific maturity like equity, are classified as hybrid instrument because they have both equity and debt features. These bonds, usually issued by banks, are not redeemable unless the issuer desires, and therefore are treated as equity. RBI considers such bonds as part of banks Tier-I capital, which traditionally comprised equity instruments.
Public Sector Undertaking Bonds (PSU Bonds): Bonds, usually for medium or long term, issued by the central Public Sector Undertakings are very common in India and is known as PSU Bonds. These bonds are supported by Govt. of India and therefore have a strong demand in Indian market. PSU Bonds are mostly sold through Private Placements to the targeted investors at market determined interest rates.
Junk Bonds: Any bond issued by a corporate having a credit rating below investment grade is known as Junk bond. Due to poor credit worthiness, issuer of such bond offers very high yield, comparative to high rated bond of similar tenor, to compensate bond holder for the additional risk.
Secured / Unsecured Bonds: Corporate bonds can be either secured against assets of the corporates or can also be unsecured. Holder of secured corporate bonds, in the event of winding up of the company, can be repaid by selling off the assets against which the bonds were secured. Holders of senior secured bonds are ranked higher than the holders of subordinated secured bonds and unsecured bonds in repayment of dues in case of closure of the company. Unsecured bond holders are paid off before any payment is made to the holder of preference shares issued by the corporation.
Risks and Return in Corporate Bonds When an investor thinks about purchasing a bond, there are four key risks attributes, namely Issuer, Currency, Coupon, Maturity; that they will assess to determine whether the bond is a good fit with their portfolio, and whether the price is fair.
I ssuer Bond Issuer defines the credit risk of the bond. Alternatively, it describes the likelihood that the investor will be repaid their periodic returns (if any) and the face value of their original investment at the end of maturity. The risk is reflected by the credit rating allotted to the bond issuer by external rating agency (s).
Currency Unlike equity, bond can be issued in many currencies. Therefore, bond markets talk about the currency of issuance and not the country of issuance. The currency of the bond defines the second key risk characteristic of the bond.
Coupon Coupon rate defines the rate of interest expected to be paid on a bond issue. This interest can be paid annually, semiannually or even every 3 months, depending on the way the bond is structured. The stated coupon rate is linked to the face value, not the actual price (higher or lower than the face value) paid, of the bond to derive the coupon income. The size of the coupon can also give an indication of the credit risk of the bond. The greater the likelihood of the issuer to default, more would be the interest asked by the investor to compensate for the higher risk.
Maturity Unlike in case of equity, bonds have a specific life or maturity, after which investors get their money back. Longer the date of maturity, more is the likelihood that the bond issuer may get into trouble and may fail to settle the claim of investors, leading to a higher credit risk for corporate bonds. Therefore, corporate bonds with longer maturity always attract higher risk premium. There may be also certain types of debt security the value of which never needs to be paid back, except under certain circumstances. These type of undated bonds are known as Perpetual bonds.
Liquidity Risk - Is another type of risk that bond investors may face. Liquidity risk arises from the illiquidity of a debt issue in the secondary bond market. In other words, whenever an investor fails to sale a security at a fair price due to lack of sufficient demand, the market is said to be illiquid for that security, and creates liquidity risk for the investors. Since most of the corporate bonds, especially in underdeveloped bond market like in India, are not regularly traded in the secondary market, liquidity risk is of grave concern for the investors expected to enter into the corporate debt market. Resource Mobilisation by Government and Corporate Sector
Issues 2010-11 (Rs bn) 2011-12 (Rs bn) 2012-13 (Rs bn) Corporate Securities 2,855 2,336 3,403 Domestic Issues 2,760 2,308 3,392 Public Issues 376 129 139 Private Placement 2,384 2,180 3,254 Euro Issues 94 27 10 Government Securities 5,835 7,590 8,658 Central Government 4,795 6,004 6,885 State Governments 1,040 1,586 1,773 Total 8,690 9,926 12,060 Source: RBI
The resource mobilization by corporates in the primary market, surged by 45.7 percent in 2012-13 to ` 3,403 billion (US $ 63 billion). This expansion was led by a significant increase in resources mobilized through private placement route; capital raised through private placement swelled by 49.3 percent to ` 3,254 billion (US $ 60 billion). On the other hand, the resources mobilized through public issues increased by 7.9 percent to ` 139 billion (US $ 3 billion), accounting for a mere 1.2 percent of the total resources mobilized domestically. However, the resources raised by Indian corporates from the international capital market through the issuance of FCCBs, GDRs, and ADRs continued on a downward trajectory (declining 61.8 percent in 201213, on the back of 71.2 percent fall in 2011-12), reflecting weak sentiment for the Indian economy. Indian corporates, raised ` 10 billion (US $ 0.2 billion) from international capital markets in 2012-13, as against ` 27 billion (US $ 0.5 billion) in the previous year. This accounted for a mere 0.1 percent of the total resources mobilized by the government and the corporate sector in 2012-13 .
Growth of Private Placement of Debt
Resources Raised from Debt Markets : Primary Issue All values in Rs. bn
Source: Indian Securities Market Review (ISMR), NSE
Bond Market as Percentage of GDP
Source : SEBI and RBI 0 2000 4000 6000 8000 10000 12000 14000 1 8 1 7
2 0 0 2
2 5 6 0
4 3 6 7
6 2 3 6
5 8 3 5
7 5 9 0
8 6 5 8
9 2 5 0
7 9 5
9 2 4
1 1 6 2
1 7 5 8
1 9 2 0
2 0 1 7
2 8 8 2 3 6 8 8
1 2 7 6
Corporate Security Govt. Security 30 13 Percentage Govt . Bond Corporate Bond Resources Raised from Debt Markets : Secondary Issue All values in Rs. bn
Security-wise Distribution of Turnover, 2012-2013
Source: Indian Securities Market Review (ISMR), NSE
Corporate Security Govt. Security 53% 23% 16% 8% Percentage Govt . Bond T - Bills Psu/ Inst Bond Others Participant-wise Distribution of Turnover, 2012-2013
Source: Indian Securities Market Review (ISMR), NSE
53% 22% 16% 4% 4% Percentage Trading Members Foreign Bank Indian Banks FI , MFs & corporates