Presentation on Indian Debt Market

Overview of Financial Markets

The Basic Premise of Financial Markets-

Market - buyers and sellers meet to exchange goods, services, money, or anything of value.
Financial market Marketplace where buyers and sellers participate in the trade of assets such as equities, bonds, currencies and derivatives.

Types of Financial Markets Classifications of financial markets: Money markets Capital markets Debt market Money Markets Money markets A segment of the financial market in which financial instruments with high liquidity and very short maturities are traded. The money market is used by participants as a means for borrowing and lending in the short term, from several days to just under a year. Capital markets - A market in which individuals and institutions trade financial securities. Organizations/institutions in the public and private sectors also often sell securities on the capital markets in order to raise funds.

 Debt markets: The debt market is the market for trading debt securities. It involves corporate bonds, government bonds, municipal bonds, negotiable certificates of deposit, and various money market investments. Debts are also packaged together into mutual funds.

DEBT MARKET

Primary Market

Secondary Market

CLASSIFIACTION OF INDIAN DEBT MARKET

Government Securities Market (G-Sec Market): It consists of central and state government securities. It means that, loans are being taken by the central and state government. It is also the most dominant category in the Indian debt market. Bond Market: It consists of Financial Institutions bonds, Corporate bonds and debentures and Public Sector Units bonds. These bonds are issued to meet financial requirements at a fixed cost and hence remove uncertainty in financial costs.

Indian Debt Market

The phases of public debt in India could be divided into the following phases. Upto 1867: Public debt was driven largely by needs of financing campaigns. 1867- 1916: Public debt was raised for financing railways and canals and other such purposes. 1917-1940: Public debt increased substantially essentially out of the considerations of 1940-1946: Because of war time inflation, the effort was to mop up as much a spossible of the current war time incomes 1947-1951: Represented the interregnum following war and partition and the economy was unsettled. Government of India failed to achieve the estimates for borrwings for which credit had been taken in the annual budgets. 1951-1985: Borrowing was influenced by the five year plans. 1985-1991: An attempt was made to align the interest rates on government securities with market interest rates in the wake of the recommendations of the Chakraborti Committee Report. 1991 to date: Comprehensive reforms of the Government Securities market were undertaken and an active debt management policy put in place. Ad Hoc Treasury bills were abolished; commenced the selling of securities through the auction process; new instruments were introduced such as zero coupon bonds, floating rate bonds and capital indexed bonds

BENEFITS OF INVESTING IN A DEBT MARKET

Safety Fixed Income Convenience Simplicity Liquidity Diversification

 Opportunity for investors to diversify their investment portfolio. Higher liquidity and control over credit. Better corporate governance. Improved transparency because of stringent disclosure norms and auditing requirements. Less risk compared to the equity markets, encouraging low-risk investments. This leads to inflow of funds in the economy. Increased funds for implementation of government development plans. The government can raise funds at lower costs by issuing government securities. Implementation of a monetary policy. Reduced role of banks and political intervention in use of funds, as banks have to follow norms laid down by the central bank.

The Structure of Indian Debt Market

Participants and Instruments In Debt Markets

Instruments
Short term instruments Call/Notice Money (1-14 days) Term Money FDs (upto 1 year) Repo (1-14 days)- 1 yr CBLO (1 day to 3 months)-(Collateral Borrowing &Lending Obligation) Treasury Bills (91 day, 182 and 365 day) Fixed deposit Certificates of Deposits (upto 1 year) Commercial Paper (upto 1 year) Bills Rediscounting schemes (upto 6 months) Long term instruments Government of India dated securities (GOISECs) Inflation linked bonds Zero coupon bonds State government securities (state loans) Public Sector Undertaking Bonds (PSU Bonds) Corporate debentures Bonds of Public Financial Institutions (PFIs)

DEBT CAPITAL MARKET IN INDIA: THE WAY AHEAD

Bond Market

Investors mostly consist of RBI, banks, individuals, PFs and MFs with the whole system coming under the purview of SEBI, RBI and the Ministry of Corporate affairs.
Corporate

Government

Financial

The government bond market, at present is quite established and reached its point of critical mass. The most under-developed part remains the corporate debt market

Indian bond market over the years

CURRENT SCENARIO

Future of the market

Conclusion
The actual future of the Indian DCM and it true potential will only be realized if the government, the policy makers and the regulators function in a coordinated and prudent manner. With huge inflow of funds required in the coming years for ambitious infrastructure projects and other capital intensive industry, the demand for debt market is ought to increase. Also with Indias increasing connectivity with the outside world and the countrys attractiveness to the FIs, more funds are destined to flow. The technological advancements in other economies along with invention of other exotic instruments, too, will be another deciding factor. In this regard, improvement on market infrastructure and putting appropriate checks and balances in place will become absolutely mandatory. The SEBI, RBI and other regulators till now, however, have performed their job quite well. All in all the future of the market and its potential to realize its capacity will be decided by the course of action to be taken by our policy makers and their willingness to become harbingers of change.