Lok Sabha Question No. 4584 (UNSTARRED), answered on 2019-07-22
Subject: Bond Market
Ministry: FINANCE
Asked by: Shivkumar Chanabasappa Udasi

## GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF ECONOMIC AFFAIRS

## LOK SABHA

## UNSTARRED QUESTION NO. 4584 TO BE ANSWERED ON MONDAY, JULY/ ASHADHA 31, 1941 (SAKA) 22nd \_

## 4584. SHRI SHIVAKUMAR C UDASI

Will the Minister of Finance be pleased to state:

- (a): whether India'$ bond market remains small as compared with other major economies and if so, the details thereof;
- (c): whether any concrete policy has been formulated by the Government in this regard; and
- (6); whether demand for credit has shifted to banks ffom the bond market and if s0, the details thereof;
- (d): if s0, the details thereof along with the remedial action planned to meet the eventuality?

## ANSWER

## MINISTER OF STATE IN THE MINISTRY OF FINANCE (SHRI ANURAG SINGH THAKUR)

- (a): India's corporate bond market has been growing in size over the past 8 years as seen in Table 1.
- Source: SEBI

Teblel: Net Qutstanding Corporate Debt

| Year (As on March end)   |       |
|--------------------------|-------|
| 2011                     |  8.9  |
| 2012                     | 10.52 |
|                          | 12.9  |
| 2014                     | 14.67 |
| 2015                     | 17.5  |
| 2016                     | 20.19 |
| 2017                     | 24.05 |
| 2018                     | 27.42 |
| 2019                     | 30.67 |

A cross country comparison of daily trading in corporate bonds as percentage of total outstanding is given in Table 2 below:

## Table 2 Daily Trades\_in Corporate Bondsas %ofTotal Qutstanding

|             | Country   | Daily Trades in Corporate Bouds as % Of Total Outstanding   |
|-------------|-----------|-------------------------------------------------------------|
| Japan       | 0.05      |                                                             |
| China       | 0.07      |                                                             |
| South Korea |           | 0.20                                                        |
| India       |           | 0.23                                                        |
| USA         |           | 1.06                                                        |

Source: CRISIL; Year 2018

With regard to daily trading in corporate bonds as a percentage of total outstanding, it can be seen that India compares favorably than other countries (Japan, China, South Korea) with the exception ofUSA

Further; & cross-country comparison of corporate bonds outstanding as percentage of GDP 25 per Table 3 below indicates India ranks higher than Japan. However; China, South Korea and USA rank higher than India as regards this parameter tbat;

Table 3: Comparison of\_size \_ofcorporate bond markets

|       | Country   | Corporate Bonds Outstanding as a % of GDP   |
|-------|-----------|---------------------------------------------|
| Japan | 14.46     |                                             |
| India |           |                                             |
| China | 28.75     |                                             |

## QUESTION

| South Korea   |   74.26 |
|---------------|---------|
| USA           |   118.8 |

Source: CRISIL; Year 2018

(6): Outstanding volume in corporate bond market has recorded an average annual growth of 16% over the last $ years while the same number for bank credit is 10%.

During the financial year 2018-19,however, corporate bonds have grown at a slower rate.

| Year (As        | Outstanding Volume (INR Trillion)   | Outstanding Volume (INR Trillion)   | Yearly Growth Rate (%)   | Yearly Growth Rate (%)   |
|-----------------|-------------------------------------|-------------------------------------|--------------------------|--------------------------|
| on Mar ch- end) | Corpora te Bonds                    | Bank Credit                         | Corporate Bonds          | Bank Credit              |
| 2014            | 14.67                               | 59.94                               |                          |                          |
| 2015            | 1750                                | 65.36                               | 19.28                    | 9.05                     |
| 2016            | 20.19                               | 72.50                               | 15.37                    | 10.91                    |
| 2017            | 24.05                               | 78.41                               | 19.10                    | 8.16                     |
| 2018            | 27.42                               | 86.25                               | 14.03                    | 10.00                    |
| 2019            | 30.67                               | 97.72                               | 11.85                    | 13.29                    |

Source: SEBI; DBIE-RBI: Database of Indian Economy

- (c) to (d) ;Securities and Exchange Board of India (SEBI) in consultation with Government of India has taken various steps for development of corporate bond market. Few recent steps in this regard are aS under:
- () SEBI, vide its circular dated August 16, 2018, reduced the time to be taken for listing in case of public issue of debt securities, noq-convertible redeemable preference shares and securitised debt instruments to 6 working days from 12 working earlier   Further; it mandated that allotment, refund, unblocking of application monies and credit of the aforesaid securities shall be done electronically. This was done to make the existing issuance process easier, simpler and cost effective for both issuers and investors: days
- (ii) Amendments for away with the requirement of 1% security deposit were notified to SEBI (Issue and Listing of Debt Securities)   Regulations,  2008, SEBI (Issue and   Listing of Non-Convertible Redeemable Preference Shares) Regulations, 2013 and SEBI (Issue and Listing of Securitised Debt Instrument and Security Receipts) Regulations, 2008 on October 09,.2018. doing
- (iii) SEBI, vide circular dated August 16, 2018 rationalized requirements under electronic book mechanism for issuance of debt securities on private placement basis, by providing provisions for closed bidding, multiple yield allotment, multiple bids, allotment on yield time priority basis, Pay-in of funds through escrow bank account of issuer, depositories to act as EBP.

The following steps have also been taken by the Reserve Bank of India (RBI) in consultation with Government of India for development of corporate bond market:

- Investment by Foreign Portfolio Investors (FPIs) in unlisted corporate debt securities and securitised debt instruments was allowed vide RBI circular dated November 17,2016.
- (ii) Repo in corporate bonds was introduced in 2010 while tripartite repo in corporate bonds was introduced in 2017.
- (iii) RBI released Guidelines on Enhancing Credit Supply for Large Borrowers through Market Mechanism which introduced a requirement for large corporates with borrowings from banking above a cut-off level to tap the market for a of their working capital and term loan needs. portion system

Further; RBI bas issued circular RBI/2016-17/50 DBRBPBC No.8/21.01.003/2016-17dated August 25, 2016 on 'Guidelines on Enhancing Credit Supply for Large Borrowers through Market Mechanism' . In terms of circular; for cases where large borrowers have aggregate exposure from the banking system; in the previous year; beyond a threshold limit (e g; Rs.15,000 crore at any time during FY 2018-19) prescribed in the circular; a disincentive mechanism in form of additional risk weights the borrower during the year. This is aimed at discouraging large borrowers from relying entirely on the banking system and to nudge them to explore alternate sources like market including corporate bonds. capital

Large Entities" . The said Circular, inter-alia, provides & framework forlisted large corporates to mandatorily meet 25% of their financing needs through issuance of debt securities