BOND MAKET

(FINANCIAL MARKETS AND INSTITUTIONS)

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

0
20000
40000
60000
80000
100000
120000
140000
2
5
8
0
4

3
5
8
3
3

5
6
2
7
3

6
2
2
5
4

8
4
2
5
3

7
0
6
8
3

7
3
4
3
1

1
2
0
1
1
6

2
5
0

1
4
1

2
2
2

4
5
9

1
1
4
2

1
5
9
2

1
7
6
1

1
9
9
4

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