and their ability to withstand the disruptions of lockdowns were dominating discourse in the early days of the pandemic, the corporate bond market innovated with bonds featuring conditional credit risk premium entailed to harmonise the interests of issuers preferring to lock in the low interest rates prevailing then with that of investors ’ concerns about credit quality. similarly, while corporate bonds in india are predominantly issued as fixed coupon bonds, during the calendar year 2021, increased issuances of floating rate bonds with coupons linked to money market and government securities benchmarks were witnessed, indicating efforts by investors to hedge against any increase in domestic interest rates. these are important metrics testifying to the resilience of the market in particular is ability to function well in times of stress. b. liquidity metrics - developing the secondary market 12. the second important metric to assess the development of a corporate bond market is the development of secondary bond markets. have secondary market trading volumes grown over the years? undoubtedly, they have ( chart 7 ). the total settled value of secondary market trades during fy 2010 - 11 was ₹4. 50 lakh crore which rose to ₹14. 37 lakh crore for fy 2021 - 22. clearly, secondary trading has not risen in consonance with the size of the market. ₹ crore chart 7 : secondary market trading in corporate bonds 10, 000 1, 000 8, 000 6, 000 4, 000 2, 000 - - avg. daily traded volume avg. daily trades ( rhs ) * data for fy 2022 - 23 is upto june 2022 source 7 13. but let us pause before passing judgement in this matter. a 2019 report on “ establishing viable capital markets ” by the bis committee of global financial system, based on a survey of a sample set of jurisdictions, concluded that the degree of liquidity concerns in the corporate bond markets of the surveyed advanced economics ( barring the us ) and emerging market economies were similar, on average. the challenges in development of liquidity in bond markets are thus clearly not unique to the corporate bond markets in india. comparable data on turnover ratios of corporate bond markets of different jurisdictions are not readily available but approximate assessments do not indicate that the indian corporate bond market lags its peers in respect of secondary market liquidity. 14. let me spend a moment to look at the underlying issues. as on june 30, 2022, the outstanding stock of corporate bonds stood at ₹

lie in the investor base in the market which is closely regulated and has a preference for highly rated issuances, perhaps justifiably so. the economic profile, mandate and / or regulatory environment of these entities often incentivises “ buy and hold ” kind of participation in corporate bond market. with a large investor base with this profile, the challenges of developing liquidity in the secondary market or of developing liquid repo and derivative markets are compounded. to take an example, insurance and pension funds are one of the most active participants of credit derivative markets globally – both as buyers and sellers of protection. without participation of these entities, it may be difficult for the credit derivatives market to develop in the country. 24. the question that arises is that what measures may be considered to widen the investor base to enhance accessibility of lower rated issuers and liquidity in the corporate bond market. given the rise in retail investments in the domestic equity market, can this category, which is conspicuous by its absence in the corporate bond market, be offered incentives to broaden the investor base in the market? what can be done to attract foreign investment in our markets? what can be done by way of incentives for regulated entities to participate more actively in risk markets, without compromising on prudential considerations? these are questions which need deliberations by all stakeholders – government, regulators and the participants of the corporate bond markets themselves. d. specialised bonds 25. in the last couple of years, there have been increasing instances of domestic corporates tapping the global markets for raising funds. to a large extent, this is only to be expected given the large pool of liquidity and benign interest rate environment that was prevailing internationally. this is also an inevitable result of greater integration of the domestic economy with the rest of the world. but there are a couple of trends which require closer examination. 26. a number of our corporates have been tapping international markets to raise environmental, social & governance ( esg ) funding while domestically such issuances have been low. i know a lot of efforts are ongoing but there is perhaps a need for us to look closely at what are the factors impeding the development of the domestic market for esg bonds and what needs to be done to attract the growing global pool of esg funds to the country. going by international experience, beyond the regulatory measures, there is a need to create conducive conditions for esg bonds - greater transparency, credible checks against greenwash