The supply of corporate bonds on the domestic market is expected to double to Rs 65-70 lakh crore by fiscal 2025, with the financial sector contributing about 50% to this development, rating agency CRISIL said.
Debt securities sold by private and public companies are corporate bonds. For a number of reasons, businesses issue corporate bonds to raise cash, such as constructing a new factory, buying machinery, or growing the company.
Supply-side technologies such as asset pooling, a well-capitalized Credit Guarantee Enhancement Business, and universal implementation of the INFRA Expected Loss (EL) rating scale would be pivotal for the bond industry to fill the void.
Credit default swaps, retail participation, index-related funds, and liquidity improvement mechanisms would be enablers on the demand side. In addition, to bridge the emerging supply-demand gap, attracting foreign capital is crucial, especially given the crowding-out of gilts stemming from the government's big borrowing programme.
CRISIL assumes that the following steps would enable the Indian debt capital market to play a larger role in the nation's construction:
- Promoting widespread adoption of the INFRA EL rating scale by ensuring approval of the scale by separate regulators.
- To promote the growth of the credit default swaps (CDS) market, introduction of the proposed Reserve Bank of India (Credit Derivatives) Directions, 2021.
- Improving retail participation in debt mutual fund investments via tax sops, similar to equity-related savings schemes, and ensuring parity in capital gains tax between equity and debt products.
- Improving market liquidity by fast-tracking the institution's set up to enable corporate bonds with secondary market liquidity.
- Exchange-traded funds and other index-linked bond funds attract both domestic and international capital, providing lower rates, greater flexibility, more liquidity and the ability to create diversified portfolios.
Gurpreet Chhatwal, Managing Director, CRISIL Ratings said, "Reporting and assessment of environmental, social and governance, or ESG factors can also make domestic bond issuances attractive to global funds, and act as a crucial facilitator. The inclusion of Indian bonds in global indices will also help channel financing from global index funds to the domestic bond market."