INDIAN DL81 MAkkL1

ACS1 LI8LkALISA1ICN ANALSIS

DL81 MAkkL1
The capital market comprises of equity market and debt market. Debt market is a
market for the issuance, trading and settlement in debt securities of various types. It is
also known as the bond, credit, or fixed income market. Debt securities are one of the
most innovative and dynamic instruments evolved in the financial system ever since the
inception of money. It is based on the concept of interest and time-value of money. Fixed
Income securities personify the essence of innovation and transformation, which have
fueled the explosive growth of the financial markets over the past few centuries .Fixed
income securities can be issued by a wide range of organizations including the Central
and State Governments, public bodies, statutory corporations, banks and institutions
and corporate bodies.
Debt secur|t|es offer one of the most attract|ve |nvestment opportun|t|es w|th
regard to safety of |nvestments adequate ||qu|d|ty and f|ex|b|||ty |n structur|ng a portfo||o
eas|er mon|tor|ng |ong term re||ab|||ty and decent returns 1hey are an essent|a|
component of any portfo||o of f|nanc|a| and rea| assets whether |n the form of pure
|nterestbear|ng bonds var|ed type of debt |nstruments or assetbacked mortgages and
secur|t|zed |nstruments
DL81 MAkkL1 IN INDIA
Debt market has a |ong h|story |n Ind|a 1he Government Secur|t|es market dates
back to 18S9 when the 8r|t|sh Government took over from the Last Ind|a Company there
has been act|ve debt |ssu|ng by the government both before and after |ndependence
Corporate 8onds ma|n|y debentures were be|ng |ssued by compan|es of good stand|ng |n
the prewar and postwar years 1here was of course a dec||ne |n corporate bond |ssues
|n the decades of s|xt|es and sevent|es fo||ow|ng the arr|va| of term |end|ng |nst|tut|ons
who supp||ed the bu|k of the med|um and |ong term fund|ng requ|rements of the pr|vate
sector 1he pub||c sector's |ong term fund|ng needs were met by the State



S1A1LMLN1 CI kC8LLM
1hough cap|ta| market has a |ong h|story |ts growth |s comparat|ve|y a recent
phenomenon |n the wor|d even |n deve|oped countr|es W|th|n the cap|ta| market 1he
deve|opment of the Debt market |s st||| poor Same trend |s seen |n the h|story of the
cap|ta| market |n Ind|a Ind|an cap|ta| market began to f|our|sh on|y |n the |ast quarter of
the 20
th
century W|th|n the cap|ta| market of Ind|a one can see the deve|opment of equ|ty
market and the under deve|opment of the Debt market In Ind|a the cap|ta| market |s
often |dent|f|ed as the equ|ty market It shows the undeve|oped and |ns|gn|f|cant ro|e of
the Debt market 1h|s study |s an attempt to ana|yze the reasons for the undeve|oped
nature of the Debt market |n Ind|a |n the background of |ts h|story and features
IMCk1ANCL CI 1nL S1UD
The debt market plays significant role in the development of any economy. In
India and in other countries the equity market has come down significantly from its
peak in recent time. Many companies are considering option of raising capital through
debt instead of equity, as investors are reluctant to put their money in equities at this
point of time. But the problem with many economies like India is, it does not have
developed debt market. Indian debt market is not as active as it is in other developed
countries. In India most of the part of the debt market is made up of government
securities and T-bills. Indian companies have hardly raised the capital through debt so
far and even if they did then it is very less compared to the debt raised by government.
There is need to find out what are the issues that can deter Indian companies to raise
the capital through debt market and what are the possible solutions to overcome these
problems.
C8ILC1IVLS
Io||ow|ng are the ma|n ob[ect|ve of the study
O To find out the growth of the Indian debt market in the post liberalization
period.
O Lva|uat|on of ma[or |ssues of debt market
O Lva|uat|on of ma[or reforms |n|t|ated |n the debt market
O Comparat|ve ana|ys|s of the debt and the equ|ty market of Ind|a
O Comparat|ve ana|ys|s of the debt market of Ind|a and USA


ML1nCDCLCG
O Indian debt market and Indian equity market can be compared with the help oI
comparative analysis. The developing Indian debt market and developed US debt
market can also be compared with the help oI a comparative analysis.
O Comparative analysis is the comparison oI the perIormance level oI an entity to the
perIormance level oI other similar entity in the same area or to other similar area.
O The research will use secondary data which can be collected Irom the various
websites and articles and books.
ComparaLlve analysls wlll be performed wlLh Lhe help of Lhe M|crosoft Lxce|
LIMI1A1ICNS
O s this study deals with the securitized debt, the most active non-securitized segment
oI money market is excluded Irom the study.
O s data on the various segment oI the debt market is not available beIore 1990s, this
study is restricted to Indian debt market Irom 1990s to 2008.

kCLL AND S1kUC1UkL CI INDIAN DL81 MAkkL1
1he f|xed |ncome secur|t|es market or popu|ar|y known as debt market |s the ear||est of a||
secur|t|es market |n the wor|d I|nanc|a| market began w|th the f|xed |ncome secur|t|es
market 1oday |t |s the |argest of a|| the f|nanc|a| market |n the wor|d
It has very prom|nent ro|e the eff|c|ent funct|on|ng of the wor|d f|nanc|a| system and
|n cata|yz|ng the econom|c growth of the nat|on nowever |n most As|an countr|es when
compared to the debt market the equ|ty market expanded at a much faster speed Now
debt markets are cons|dered an a|ternat|ve route for f|nanc|ng to bank|ng channe|s It
p|ays very |mportant ro|e |n the deve|opment of economy It p|ays the fo||ow|ng ro|es
O Lff|c|ent Mob|||zat|on and a||ocat|on of I|nanc|a| and other resources |n the
economy
O I|nanc|ng the deve|opment act|v|t|es of the government
O 1ransm|tt|ng s|gna|s for the |mp|ementat|on of var|ous monetary and other
po||c|es of the centra| bank of the country


O Iac|||tat|ng the eff|c|ent ||qu|d|ty management |n tune w|th the overa|| short term
and |ong term ob[ect|ves of the econom|c p|ann|ng
O Cpportun|ty for |nvestors to d|vers|fy the|r |nvestment portfo||o
O n|gher ||qu|d|ty and contro| over cred|t
O 8etter corporate governance
O Improved transparency because of str|ngent d|sc|osure norms and aud|t|ng
requ|rements
O Less r|sk compared to the equ|ty markets encourag|ng |owr|sk |nvestments 1h|s
|eads to |nf|ow of funds |n the economy
O Increased funds for |mp|ementat|on of government deve|opment p|ans 1he
government can ra|se funds at |ower costs by |ssu|ng government secur|t|es
O Imp|ementat|on of a monetary po||cy
O keduced ro|e of banks and po||t|ca| |ntervent|on |n use of funds as banks have to
fo||ow norms |a|d down by the centra| bank
#GULATO#S OF TH DBT MA#T
The debt market in India is under the strict supervision and control of the #eserve
Bank Of India and Securities and xchange Board of India
1. #eserve Bank of India (#BI)
Government securities and issues by Banks, Institutions are regulated by the #BI.
#ole of the #BI is to regulate the issue of Bank Notes and keeping of reserves with a
view to securing monetary stability in India and generally to operate the currency and
credit system of the country to its advantage.
2. Securities and xchange Board of India (SBI)
The issue of non-government securities comprising basically the issues of Corporate
Debt is regulated by SBI.

ISSULS CI DL81 MAkkL1
A8SLNCL CI CCMMCN 1kADING MLCnANISUM
Desp|te |ncrease |n number of part|c|pants the debt market |s yet to graduate from a
"negot|ated dea|" te|ephone market 1he markets wor|d over are sw|tch|ng from
te|ephone trad|ng to screenbased techno|ogy wh|ch br|ngs |n |ncreased transparency
|ncreased compet|t|on and eff|c|ent pr|ce d|scovery |mproves eff|c|ency of execut|on of
trade and reduces costs for the p|ayers 1he market wou|d ga|n substant|a||y |n ||qu|d|ty
and eff|c|ency |f the trad|ng framework of equ|ty market |s rep||cated |n the debt market
a|so 1hat |s four key pr|nc|p|es anonym|ty pr|ce t|me pr|or|ty nat|onw|de market and
sett|ement guarantee app|y to trad|ng of debt |nstruments 1he p|ayers share a common
p|atform to buy or se|| secur|t|es Absence of any requ|rement to go through a common
p|atform ||ke stock exchange |nduces some of the p|ayers to enter |nto nontransparent
dea|s through the te|ephon|c market If these part|c|pants are requ|red to go through a
screen based trad|ng on stock exchanges where an eff|c|ent and transparent pr|ce


d|scovery mechan|sm |s ava||ab|e w|th comp|ete aud|t tra|| of act|v|t|es a ||qu|d and
v|brant secondary market for debt w||| be a rea||ty SL8I has taken the |n|t|at|ve |n th|s
regard by proh|b|t|ng 'negot|ated dea|s' |n respect of ||sted corporate debt secur|t|es and
prescr|b|ng that a|| such trades wou|d be executed on the bas|s of pr|ce and order
match|ng mechan|sm of stock exchanges as |n case of equ|t|es S|m||ar prescr|pt|on |s
needed |n respect of a|| other debt Instruments
ISSULS kLLA1LD 1C CLLAkING AND SL11LLMLN1
Nat|onw|de c|ear|ng and Sett|ement k8I prov|des a 'Statutory Genera| Ledger (SGL)'
account fac|||ty to |arge banks and I|nanc|a| Inst|tut|ons to ho|d the|r |nvestments |n
Government Secur|t|es and treasury 8|||s |n 8ookentry form As a|| |nvestors do not have
access to the SGL fac|||t|es they are a||owed to ho|d secur|t|es |n phys|ca| form or they
may open an account w|th a Const|tuent SGL account w|th any ent|ty author|zed by the
k8I for th|s purpose 1he k8I operates these accounts through var|ous ub||c Debt Cff|ces
(DCs) |n each c|ty As the DCs |n var|ous |ocat|ons are not ||nked |nvestors can on|y
execute transact|on w|th other |nvestors ho|d|ng accounts w|th the same DC Absence of
a nat|onw|de c|ear|ng and sett|ement fac|||ty for |nvestors has prevented the f|ow of
orders from a|| reg|ons |nto a s|ng|e order book thereby reduc|ng ||qu|d|ty 1he buyer ends
up pay|ng a ||qu|d|ty prem|um for each transact|on It |s |mperat|ve that each |nvestor can
ho|d and sett|e transact|on on a nat|onw|de bas|s |rrespect|ve of the |ocat|on of |ts
account Nat|onw|de c|ear|ng and sett|ement |s the pr|mary requ|rement for creat|on of a
reta|| order f|ow
ISSULS CI S1AM DU1 CN 1kANSILk CI DL81 INS1kUMLN1S
W|th a v|ew to modern|z|ng debt market and |ntroduc|ng paper|ess trad|ng |n th|s segment
a|so the I|nance M|n|ster |n h|s 8udget Speech dated 27
th
Iebruary 1999 announced
abo||t|on of stamp duty on transfer of debt |nstruments w|th|n the depos|tory mode In
order to operat|ona||se th|s proposa| the I|nance Act 1999 added the fo||ow|ng c|ause |n
Sect|on 8A of the Ind|an Stamp Act
"(f) transfer of benef|c|a| ownersh|p of debentures such debentures be|ng debentures of a
company formed and reg|stered under the Compan|es Act 19S6 or a body corporate
estab||shed by a Centra| Act dea|t w|th by a depos|tory sha|| not be ||ab|e to duty under
Art|c|e 27 of Schedu|e I of th|s Act"
ISSULS CI IUNDING CI IN1LkMLDIAkILS
1rad|t|ona||y brokers are the ma|n |ntermed|ary |n the secur|t|es market 1hey do
not come forward to prov|de cont|nuous twoway pos|t|ons |n the market due to absence
of any fund|ng mechan|sm for them 1he |aws perm|t a broker to obta|n work|ng cap|ta|
|oan of on|y ks S0 |akh aga|nst the secur|t|es Ds and SDs who are the new entrants |n
the market w|th s|m||ar funct|on of d|str|but|on and broad bas|ng the |nvestor base for
debt secur|t|es have recourse to the ca|| money market as we|| as repo market to meet
the|r temporary funds requ|rement 8rokers shou|d therefore be prov|ded f|nanc|a|
support by encourag|ng banks to set up ||nes of cred|t |n favor of them aga|nst the|r
ho|d|ng of government secur|t|es and other h|gh|y rated debt papers


1h|s w||| not on|y f|nance the |nventory of the Government and other e||g|b|e debt paper
but the |nventory so bu||t up sha|| serve the purpose of co||atera| for the cred|t so ava||ed
A|ternat|ve|y these brokers shou|d a|so be a||owed to part|c|pate |n the kepo market
ISSULS kLLA1LD 1C kIVA1L LACLMLN1
1he conven|ence of structur|ng of the |ssues to match the needs of |ssuers w|th those of
|nvestors coup|ed w|th sav|ngs |n terms of t|me and cost has contr|buted to rap|d growth
of market for pr|vate p|acement Government keport of the Informa| Group on r|mary
Market stresses the need for keep|ng th|s route a||ve s|nce |t he|ps to ra|se resources
qu|ck|y and |nexpens|ve|y It |s however be||eved |n certa|n c|rc|es that pub||c |ssues are
be|ng passed off |n the garb of pr|vate p|acement to avo|d comp||ance w|th str|ngent entry
and d|sc|osure norms assoc|ated w|th pub||c |ssues 1h|s requ|res sub[ect|ng pr|vate
p|acement to appropr|ate regu|atory d|sc|p||ne It cou|d be spec|f|ed that pr|vate
p|acements resu|t|ng |n a||otments to more than a spec|f|ed number of peop|e say S0 or
100 wou|d be deemed as pub||c |ssues and be sub[ect to usua| d|sc|osure norms of SL8I In
the a|ternat|ve the part|c|pat|on |n pr|vate p|acement cou|d be restr|cted to on|y
know|edgeab|e |nvestors ||ke qua||f|ed |nst|tut|ona| |nvestors and h|gh networth
|nd|v|dua|s 1hese cou|d a|so be traded among qua||f|ed |nst|tut|ona| |nvestors on C1CLI
ISSULS kLLA1LD 1C ASSL1 8ASLD SLCUkI1I2A1ICN
Secur|t|zat|on of assets |s a structured process whereby des|gnated poo|s of |oans or other
rece|vab|es are packaged underwr|tten and so|d |n the form of f|nanc|a| |nstruments A
typ|ca| secur|t|zat|on process |nvo|ves sa|e]transfer of the rece|vab|es from an
organ|zat|on (the owner of assets) to an |ndependent ent|ty (trustee) or a spec|a| purpose
veh|c|e (SV) wh|ch |n turn |ssues the f|nanc|a| |nstruments to |nvestors It offers an
effect|ve and re|at|ve|y qu|ck and |ess cost|y a|ternat|ve fund|ng source Naras|mham
Comm|ttee keport (II) has observed that there |s scope to h|ve off NA portfo||o from II
books through secur|t|zat|on Secur|t|zat|on wou|d enab|e IIs fac|ng resource constra|nts
to focus on the|r core competenc|es of fund|ng |nfrastructure products through gestat|on
stage and subsequent|y secur|t|z|ng them rather than fund|ng them t||| matur|ty
ISSULS kLLA1LD 1C kL1AIL Ak1ICIA1ICN
Government secur|t|es are the safest |nvestment ava||ab|e to |nvestors 1hese offer
returns comparab|e to that on bank depos|ts A number of measures have been |n|t|ated
to deve|op reta|| market for Gsecs 1hese |nc|ude estab||shment of pr|mary and sate|||te
dea|ers ||qu|d|ty support and other fac|||t|es to g||t funds |ntroduct|on of const|tuent SGL
account fac|||ty a||ocat|on of S of the not|f|ed amount |n auct|ons for the reta|| segment
|aunch of NDS and CCIL etc Investment |n Gsecs offers attract|ve benef|ts such as good
y|e|ds no 1DS easy ||qu|d|ty no defau|t r|sk tax benef|ts under sect|on 80L w|de range of
matur|t|es to su|t every ones need etc Desp|te a|| these the Gsec market |s exc|us|ve
preserve of banks |nsurance compan|es prov|dent funds and trusts 1he reta|| segment
wou|d get a boost |f there can be reta|| out|ets at conven|ent |ocat|on to fac|||tate
d|str|but|on and trad|ng of sma|| |ots of Gsecs 1he reach of the stock exchanges can be
advantageous|y used to reta|| G secs 1he |eve| of awareness about Gsecs needs to be


|mproved to make the |nvestors aware about the r|skreturn prof||e of Gsecs v|sv|s
compet|ng products such as sma|| sav|ng |nstruments |nsurance schemes equ|t|es and
debentures etc
1he househo|d |nvestment |n the government secur|t|es |s neg||g|b|e 1h|s |s on
account of var|ous factors I|rst there |s an absence of awareness amongst the common
pub||c as to mer|ts of the |nvestment |n a cred|tr|skfree sovere|gn paper Second there
are compet|ng |nstruments such as sma|| sav|ngs |nstruments |nsurance schemes equ|ty
and debentures wh|ch e|ther offer h|gher effect|ve returns or other benef|ts though the
r|sk percept|ons of some of these |nstruments do not appear to bother the sma|| |nvestor
1h|rd the cumbersome sett|ement procedures and the |ack of reasonab|e ex|t route are
not comfort|ng the sma|| |nvestor Iourth |nst|tut|ona| mechan|sm |n terms of agency
serv|ces |s absent
ISSULS kLLA1LD 1C UNkLALI2LD C1LN1IAL
1he government and the corporate sector have unconsc|ous|y kept the common
|nvestor away from f|xed |ncome marketab|e |nstruments It |s |n the |nterest of both
Government and the corporate sector to ent|ce the common |nvestors |nto the|r f|xed
|ncome marketab|e |nstruments Government wou|d be ab|e to br|ng down |ts borrow|ng
costs |f |t ra|ses funds d|rect|y from the common |nvestor 1he ex|st|ng tax sops g|ven to
bank depos|ts may be extended to |nvestments |n government secur|t|es 1he |eve| of
mandatory SLk may be gradua||y brought down so as to make the f|nanc|a| system more
marketor|ented A network of underwr|ters brokers and subbrokers to d|str|bute
government secur|t|es needs to be deve|oped 1he supp|y of good corporate bonds |s
scarce espec|a||y for the common |nvestor Ind|an corporate ent|t|es have not yet shown
enough |nterest to tap the reta|| markets through |ssue of bonds 1hey have been
depend|ng on convent|ona| sources ||ke banks and f|nanc|a| |nst|tut|ons and the pr|vate
p|acement market 1he y|e|ds they offer to these sources wou|d be equa||y attract|ve for
common |nvestors Cnce the |nvestment act|v|ty p|cks |n the economy the costs of
borrow|ng from these trad|t|ona| sources w||| go up 1hey shou|d try to tap the ma|n
source of supp|y v|z the househo|d sector and benef|ts from the |ow cost d|s|nter
med|ated funds Corporate ent|t|es w|th very good cred|t rat|ng w||| be ab|e to br|ng down
the|r cost of borrow|ngs |f they tap the market d|rect|y W|th the recent amendment |n the
Income 1ax Act appropr|at|ve stamp duty on transfer of ownersh|p of debt |nstruments
has been abo||shed W|th the d|sappearance of phys|ca| secur|t|es hand||ng costs |n
depos|tory mode has s|gn|f|cant|y reduced for the secondary market transact|ons 1he
process of ownersh|p transfer |s a|so much safer and cheaper It does not requ|re great
dea| of |nnovat|on to exp|o|t the secondary market |nfrastructure for the d|str|but|on of
any depos|torybased secur|ty |nstrument 1he NSLs secondary market |nfrastructure
wh|ch has now spread to more than 360 c|t|es can be effect|ve|y used for d|str|but|on of
corporate debt paper



ISSULS kLAL1LD 1C kLGULA1Ck CLAkI1
1he po||cy makers have demonstrated the|r ser|ousness to deve|op the debt market
1hree ma[or steps taken |n th|s d|rect|on |n the recent past |e exempt|on of stamp duty
on transfer of debt secur|t|es mandat|ng screen based trad|ng of debt secur|t|es and
|n|t|at|ve to set up a c|ear|ng corporat|on for sett|ement of transact|ons |n government
secur|t|es have ra|sed hopes among market part|c|pants It wou|d take about a year for
fu|| rea||zat|on of the benef|ts from these measures nowever the debt market |s
current|y regu|ated by a number of regu|atory author|t|es name|y k8I SL8I Department
of Lconom|c Affa|rs and Department of company affa|rs It |s des|rab|e that there |s on|y
one regu|atory author|ty |n the |nterest of effect|ve regu|at|on and deve|opment of the
market
#FO#MS IN TH DBT MA#T
As an |ntegra| part of a comprehens|ve program of f|nanc|a| sector reform Ind|a's
government secur|t|es market (GSM) has undergone a huge transformat|on s|nce 1991]92
1he ma|n ob[ect|ve of th|s act|ve debt management po||cy has been to moderate ||qu|d|ty
growth conta|n |nf|at|onary pressure and conduct debt management |n a costeffect|ve
manner Cons|der|ng Ind|a's macro management and m|cro market structure the
deve|opments s|nce 1991]92 can be d|v|ded |nto two sub phases Dur|ng the f|rst sub
phase (199196) reforms were eng|neered to fac|||tate "marketborrow|ng" w|th pr|ce
d|scovery through auct|ons restr|ct automat|c monet|zat|on by f|x|ng a cap on the dur|ng
theyear and endyear amount deve|op appropr|ate |nstruments
keforms |n Government 8ond Market
r|or to 1992 money was co||ected and |ent accord|ng to |an Lacunae |n
|nst|tut|ona| |nfrastructure and |neff|c|ent market pract|ces character|zed the government
secur|t|es market In fact the so|e ob[ect|ve pursued was to keep the cost of government
borrow|ng as |ow as poss|b|e If p|ann|ng went awry the government sent word to |ts
banker 1he centra| bank made a few phone ca||s to the heads of banks and bonds were
|ssued and the money arranged No quest|ons asked no exp|anat|ons g|ven 1he GCI bond
market d|d not use trad|ng on an exchange It featured b||atera| negot|at|on between
dea|ers 1he market thus |acked pr|cet|me pr|or|ty and the b||atera| transact|ons |mposed
counterparty cred|t r|sk on part|c|pants 1h|s narrowed down the market |nto a "c|ub"
w|th homogeneous cred|t r|sk 1h|s was the state of the government debt market |n Ind|a
ten years ago 1he debt market began tak|ng shape 1he |dea of the f|nanc|a| reform
movement was to have more and more d|fferent markets and not necessar||y have who|e
f|nanc|a| |ntermed|at|on |eft to the banks
1he reform process attempted at do|ng away w|th regu|at|ons |n favor of contro|s
based on market forces |e an era where the |nterest rates are governed more by the
market forces of demand and supp|y and |ess by centra||zed superv|s|on S|ow|y but
stead||y the market grew add|ng fresh p|ayers and nove| |nstruments Severa| measures
have added greater transparency and have brought the |ssuances c|oser to the market
|eve|s


1he ma[or reforms that took p|ace |n the 1990's were
O Introduction of the auction system for sale of dated government securities in
1une1992. This signaled the end of the era of administered interest rates.
O The #BI moved to computerize the SGL and implement a form of a delivery
versus payment` (DvP) system. The DvP enabled mitigating of settlement risk in
securities and ensured the smoothness of settlement by synchronizing the
payment and delivery of securities.
O Innovative products in form of Zero Coupon Bonds and Capital Indexed Bonds
(x. Inflation Linked) were issued to attract a wider gamut of investors.
However, the pace of innovation suffered due to non-sophistication of the
markets and lack of persistence with some of the new bonds like Inflation
Indexed bonds after the initial lukewarm response.
O The system of Primary Dealers was established in March 1995. These primary
dealers have since then acquired a large chunk of share in the GOI bond market
and have played the role of market makers.
O The #BI setup ~trade for trade regime, a strong regulatory system which
required that every trade must be settled with funds and bonds. All forms of
netting were prohibited.
O holesale Debt Market (DM) segment was set up at NS, A limited degree of
transparency came about through the DM at NS, where roughly half the
trading volume of India`s GOI bond market is reported.
O The ays And Means agreement put an end to issuance of ad hoc treasury bills,
the government`s favorite instrument of funding its profligacy.
O Interest Income in G-Secs was exempted from the purview of TDS.
O FIIs with 100 Debt Schemes were allowed to invest in GOI Securities and T-
Bills while other FIIs were allowed 30 investment in these instruments.
O Dematerialized forms of securities in G-Secs were done through the SGL and
Constituents SGL accounts
keforms |n Corporate 8ond Market
O In the last decade, market related borrowings by the corporate sector have
remained depressed as a plethora of Financial Institutions were available for
disbursal of credit. These Institutions managed to mobilize a significant amount
of domestic savings and route them for corporate consumption.

Also the reforms abolished the office of the Controller of Capital Issues (CCI), which
meant that companies were free to price their equity issues as per the market appetite.
This led to a slew of primary issue of equity and the relative attractiveness of issue of
debt yielded way to equities. In fact, even debt issues were made with attached
sweeteners like convertible portion of the fixed income instrument. In addition, several
relaxations in regulations post 1992 have encouraged Indian corporate to raise debt


from overseas capital markets leading to further shunning of the domestic debt market
by creditworthy issuers. Therefore, the corporate debt market in India has continued to
be dominated by the PSU`s.
O In the recent past, the corporate debt market has seen high growth of innovative
asset-backed securities. The servicing of debt and related obligations for such
instruments is backed by some sort of financial assets and/or credit support from
a third party. Over the years greater innovation has been witnessed in the
corporate bond issuances, like floating rate instruments, zero coupon bonds,
convertible bonds, callable (put-able) bonds and step-redemption bonds. For
example, step bonds issued by ICICI in 1998, paid progressively higher rates of
interest as the maturity approached while the IDBI`s step bond was issued with a
feature to pay out the redemption amount in installments after an initial holding
period. The deep discount bond issued by IDBI in the same year had two put and
call options before maturity.
O hat these innovative issues have done is that they have provided a gamut of
securities that caters to wider segment of investors in terms of maintaining a
desirable risk-return balance. Over the last five years, corporate issuers have
shown a distinct preference for private placements over public issues. This has
further cramped the liquidity in the market. hile private placement has grown
6.23 times to #s. 62461.80 cores in 2000-2001 since 1995-96, the corresponding
increase in public issues of debt has been merely 40.95 percent from the 1995-96
levels.
Ind|a Debt market Vs Ind|an Lqu|ty market
In many countr|es debt market |s |arger than equ|ty markets In fact |n matured
econom|es debt market |s three t|mes the s|ze of the equ|ty market Ind|an debt market
has grown stead||y |n |ast 1S20 years but st||| Ind|an debt market's market cap|ta||zat|on
|s not even the ha|f of the equ|ty market's market cap|ta||zat|on (200910)










1ab|e 1
Market cap|ta||zat|on of debt and equ|ty market (Ind|a)
NSL
ear
Market Cap of
Debt (ksCr)
Market Cap
Cf Lqu|ty
(ksCr)
1994199S 1S8181 3633S0
199S1996 207783 4014S9
19961997 292772 419367
19971998 343191 481S03
19981999 411470 49117S
19992000 494033 1020426
20002001 S8083S 6S7847
20012002 7S6794 636861
20022003 864481 S37133
20032004 121S864 1120976
2004200S 1461734 1S8SS8S
200S2006 1S67S74 2813201
20062007 1784801 33673S0
20072008 2123346 48S8122
2008 2009 284831S 2896194
2009 2010 316S929 6009173
(Source Nat|ona| stock exchange)
k8I and SL8I have taken many reforms |n |ast decade to make the debt market more
attract|ve for |nvestors 8ut st||| there are many regu|atory hurd|es wh|ch prevent debt
market to grow and become more act|ve




INDIAN DL81 MAkkL1 AND US DL81 MAkkL1
US debt market |s wor|d's |argest and most act|ve debt market 8y compar|ng Ind|an debt
market w|th US debt market we can conc|ude where we are stand|ng |n compar|son to
deve|oped debt market
1ab|e 2
Cutstand|ng Ind|an bond market debt
5 8||||ons
ear Gov
Corporate]
Non Gov
1ota|
1urnover
of Gov |n
Secondary
Market
1urnover
of
Corp]Non
Gov
Secondary
Market
1ota|
1urnover
Growth
|n
1urnover
()
199S96 1043 289 1332 2834 020 28S4
199697 9S1 S6S 1S17 2740 027 2767 306
199798 1S02 734 223S 4139 081 4219 S2S1
199899 2364 1029 3393 S064 232 S297 2SS3
199900 2S26 1324 38S0 12018 234 122S2 13132
200001 2863 1261 4124 1SSS9 324 1S883 2963
200102 3399 1149 4S48 3S077 440 3SS16 12362
200203 40S6 1184 S239 43S87 803 44390 2498
200304 4416 1176 SS92 S9710 942 606S2 3664
20040S 324S 1321 4S66 6S863 8S6 66719 1000
200S06 40S1 1824 S87S S7S08 S63 S8072 1296
200607 4462 20S8 6S20 79860 314 8017S 3806
(Source Nat|ona| Stock exchange)


O Government securities and Treasury bills dominates the debt market.
Corporate/Non government debt securities make very less portion of debt
market. One of the reasons why corporate are not issuing debt securities is
regulatory requirements and less active secondary market.
O Turnover in the secondary market is also big concern. It has grown over a period
of time but still it is not enough to term the Indian debt market as active.
1ab|e 3 58||||ons
Cutstand|ng US bond market debt
ear
Mun|c|pa| 1reasury
Mortgage
based
corporate
debt
Iedera|
secur|t|es
Asset
backed
1ota|
1991 12722 24716 16369 14S47 4428 1299 74081
1992 13028 27S41 19370 1SS70 4840 1637 81986
1993 1377S 2989S 21447 16747 S707 1999 89S70
1994 13417 31260 22S17 17SS6 7389 2S73 94712
199S 1293S 33072 23S21 1937S 8446 3163 100S12
1996 12960 34S97 24861 2126S 92S8 4044 10698S
1997 13187 34S68 26802 23S90 10226 S3S8 113731
1998 14029 33SSS 29SS2 27080 13006 731S 124S37
1999 14S72 32810 33342 3046S 16200 9008 136397
2000 14807 29669 3S6S8 33S84 18S46 10718 142982
2001 1603S 2967S 41276 38364 21496 12811 1S96S7
2002 17629 32049 46864 40996 22928 1S433 17S899
2003 1900S 3S749 S2386 44S94 26367 16937 19S038
2004 20310 39436 S4SS8 478S1 274S1 18278 207884


200S 222S8 416S8 S91S6 49S98 26138 19SS2 218360
2006 23679 43229 64924 S3942 26603 21304 233681

2007 26189 S081S 91424 S9468 29333 24724 2819S6

2008 26762 6082S 91019 62016 320S2 26718 299392

2009 2801S 7601S 9187S 68499 97279 24290 31607
(Sourcesecur|t|es |ndustry and I|nanc|a| market Assoc|at|on)
O If we compare Indian debt market with US debt market, then India`s total debt
outstanding is very less compared to US. This shows that Indian companies and
corporate do not prefer to raise money through debt. The annual average
trading volume in the secondary debt market in India is less than the daily
average trading volume in the secondary debt market of the US.
#COMMNDATION
From the above study I suggest the following recommendations to make Indian debt
market more efficient and active.
O keduce the d|rect ro|e of government |n the determ|nat|on of |nterest rates by
estab||sh|ng an |ndependent pub||c debt off|ce funct|on
O keduce the d|rect ro|e of government as owner of f|nanc|a| |nst|tut|ons to perm|t
the deve|opment of a greater d|vers|ty of v|ews |n |nvestment dec|s|ons
O kemove restr|ct|ons on |nvestment dec|s|on mak|ng by |nst|tut|ona| |nvestors (such
as pens|on funds and ||fe |nsurers) and max|m|ze outsourc|ng of |nvestment
dec|s|ons and treasury funct|ons to profess|ona| fund managers
O Inst|tute changes to support a system of proper|y funded and |ndependent|y
managed pens|on schemes
O S|mp||fy pub||c |ssuance procedures standard|ze and regu|ar|ze pr|vate
p|acemement documentat|on to |mprove access to the market by reta|| |nvestors
O kemove |mped|ments to the |nteract|on of the |nst|tut|ona| and reta|| market by
ensur|ng that banks can access stock exchanges on beha|f of the|r customers
O Improve posttrade transparency on secondary debt markets to perm|t eff|c|ent
pr|ce d|scovery and thus encourage w|der part|c|pat|on |n the market
O Invo|ve the market more forma||y |n dec|s|ons on des|gn of f|nanc|a| |nfrastructure
pro[ects



I|nd|ng
Debt secur|t|es offer one of the most attract|ve |nvestment opportun|t|es w|th
regards to safety of |nvestment adequate ||qu|d|ty and f|ex|b|||ty |n structur|ng a portfo||o
eas|er mon|tor|ng |ong term re||ab|||ty and decent return
Debt secur|t|es has very prom|nent ro|e |n the eff|c|ent funct|on|ng of the wor|d
f|nanc|a| system and |n cata|yz|ng the econom|c growth of the nat|on
When compare to the equ|ty market and debt market equ|ty market has grown
faster than debt market and |t |s more vo|at||e than debt market
When compare to the US debt market and Ind|an debt market we can say that
US debt market |s |arger than Ind|an debt market
#F#NCS
1. Ajay Shah and Susan Thomas (28
th
August, 2001), ~The evolution of securities
market in India in the 1990s.
2. Dr. Y.V.#eddy, Governor, #BI (18
th
October, 2007), ~Developing Debt Markets in
India: #eview and Prospects, Speech at ashington, USA.
3. Pronab Sen, Nikhil Bahel and Shikhar #anjan (1uly 2003), ~Developing the Indian
debt Capital market: Small Investors Perspectives, working paper.
4. C. #. L. Narasimhan (10
th
December, 2007), ~The time has come for corporate bond
market, The Hindu.
5. Andy Mukherjee (31
st
October, 2007), ~Viewpoint: eak bond market hampers
India, International-Herald Tribune.
6. Nikhil alavalkar (31
st
December, 2006), ~Debt Instruments: hat 2007 holds,
The Financial xpress.
7. Deepak Mittal (2002), ~The Development of Bond Market in India, Dhan`-
quarterly magazine, Finance and Investment club, IIM-C.
8. SIFMA: #esearch report` (Feb, 2008) published by Securities Industries and
Financial market Association.
9. Indian security market: A review-1999` published by National stock exchange of
India Ltd.
10.Indian security market: A review-2000` published by National stock exchange of
India Ltd.
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India Ltd.
12.Indian security market: A review-2002` published by National stock exchange of
India Ltd.
13.Indian security market: A review-2003` published by National stock exchange of
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14.Indian security market: A review-2004` published by National stock exchange of
India Ltd.
15.Indian security market: A review-2005` published by National stock exchange of
India Ltd.
16.Indian security market: A review-2006` published by National stock exchange of
India Ltd.
17.Indian security market: A review-2007` published by National stock exchange of
India Ltd.
18.FIMMDA-NS Debt market (Basic) Module ork Book Published by NS.
19.www.nseindi.com
20.www.bseindia.com
21.www.rbi.org.in and www.sebi.gov.in

22.Indian security market: A review-2008` published by National stock exchange of
India Ltd.
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