The CRISIL Yearbook On The

Indian Debt Market

2015

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The CRISIL Yearbook On The

Indian Debt Market

2015

Table of contents
Executive summary

Corporate bonds

53

The year that was

Depth wish in three steps

Certificates of deposit and commercial papers

63

13

Government securities

67

The structural story is turning conducive

21

State development loans

71

A brave new financial order

25

Treasury bills

79

Dawn of the bankruptcy code

29

83

Easing regulatory bottlenecks

33

External commercial borrowings/ foreign

currency convertible bonds

Overcoming market shallowness

Adopting global best practices

37

Chronology of key debt market milestones

87

Annexures

88

45

Abbreviations

106

Executive summary
It has been more than a decade since the High Level Expert
Committee chaired by the late Dr R H Patil released the first
defining report on developing Indias corporate bond market.
Since then, such markets in emerging economies have tripled
to $6.9 trillion (2014) from $1.9 trillion (2005) in terms of bonds
outstanding. Domestic data for the same period is not available,
but in the five fiscals to 2015, corporate bonds outstanding
have doubled to Rs 17.5 lakh crore, driven by financial sector
entities primarily from the public sector.
But in terms of the more important yardstick of market
penetration which is the amount outstanding to GDP Indias
corporate bond market has grown just 6.43 percentage points in
those five fiscals from 10.31% to 16.74%.
And this is not because evangelists are few and far between;
the development of the corporate bond market has been an oftrepeated theme across research papers and conferences.
The example of Malaysia is germane and instructive here. The
government there drew out a 10-year roadmap for its capital
market in 2001, implemented programmes, and in 2009, opened
it up even further by setting up the countrys first national
financial guarantee institution, the Danajamin Nasional Berhad.

Clearly, the takeaway is that a concerted effort to develop

Indias corporate bond market has become an imperative,
taking cues from all seminal work available and the experience
of countries such as Malaysia. More so because Indias
banking sector could come up short in terms of wherewithal
for the great build-out over the next two decades. Time is
nigh, therefore, to identify actionable steps to deepen Indias
corporate bond market and relentlessly implement them.
At CRISIL, we see three crucial steps, which have facilitated
market growth in developed nations, as unmissable: 1)
increasing investor demand; 2) transitioning from bank loans to
bonds; and, 3) developing facilitative infrastructure.
Working towards the setting up of a dedicated institution
to provide guarantees/ credit enhancement, and improving
the infrastructure for trading, reporting and settlement will
naturally be a part of these.
Needless to mention, any roadmap will need progress
milestones that are, well, cast in stone.
Losing another decade simply doesnt make sense. The stakes
are just too high.

The upshot? Penetration of the corporate bond market in

Malaysia is more than two-and-a-half times Indias at 43.85%
of GDP today.

The year that was

Overall, fiscal 2015 was a good year for the Indian debt market.
Total debt outstanding increased 14% year on year to Rs 8 lakh
crore, with commercial papers (CPs) doubling to Rs 2 lakh crore
and corporate bonds logging a healthy 19% growth.
Inflows were strong, driven by the feel good around formation
of a stable government at the Centre, its reforms agenda,
and a significant easing in inflation. Mutual fund managers
pumped nearly Rs 5.87 lakh crore into the debt market, up 8%
year on year, while foreign portfolio investors (FPIs) made a net
investment of Rs 1.64 lakh crore.
The monetary policy framework witnessed key changes
during the year, reflecting implementation of some of the
recommendations of the Expert Committee to Revise and
Strengthen the Monetary Policy Framework, which submitted
its report in January 2014. The most significant change was
adoption of CPI (combined) as the key metric of inflation for
conducting monetary policy.
Decline in inflation (CPI halved to 5% from 10%), improved
market sentiment and higher demand from institutional
investors led to a fall of more than 130 basis points in yields of
the 10-year benchmark government security (G-sec).

Measures by the Reserve Bank of India (RBI), such as reducing

the statutory liquidity ratio (SLR) requirements to 21.5% from
23% and the ceiling in government securities in held to maturity
category to 22% from 24%, maintaining liquidity through
measures in repo market, and changing the norms to bar FPIs
from investing in securities of less than 3 years maturity led
to an increase in liquidity of G-secs. Accordingly, government
borrowing was also limited to medium-to-long term papers.
State development loans (SDLs) saw activity in tenures other
than the traditional 10-year segment, with issuance of a few
SDLs of 4- and 5-year tenure, and a few special SDLs of tenure
greater than 10 years issued by governments of Uttar Pradesh
and Rajasthan (not covered under SLR category).
The year saw several corporate issuers hitting the debt market
with commercial papers and bonds. Overall trading increased in
both primary and secondary debt markets as yields continued
to fall. The year saw an increase in issuances by issuers rated A
or below as yields in the debt market were lower compared with
loans due to higher base rates of banks and growing acceptance
of such securities by mutual funds and alternative investment
funds.

10-year benchmark yields (%)

10

Mar 31, 2014

Jun 30, 2014

Sep 30, 2014

Dec 31, 2014

Mar 31, 2015

G-sec

9.29

9.01

8.88

8.16

7.98

SDL

9.65

9.21

9.16

8.37

8.17

AAA corporate bond

9.59

9.14

9.16

8.55

8.25

Key recent events

Monetary policy announcements
Policy rates
Fix-range LAF rates (%)
Effective date

Bank rate

Repo

Reverse repo

Cash reserve ratio

Marginal standing facility

Statutory liquidity ratio

Apr 1, 2014

23

Jun 14, 2014

22.5

Aug 9, 2014

22

Jan 15, 2015

8.75

7.75

6.75

8.75

Feb 7, 2015

21.5

Mar 4, 2015

8.5

7.5

6.5

8.5

Additional measures

FPI investments

April 2014: RBI increased the liquidity provided under

April 2014: As a further step towards encouraging longer-term

flows, investments by FPIs in G-secs was permitted only in
dated securities of residual maturity of one year and above, and
existing investment in treasury bills was allowed to taper off
on maturity/sale. The overall limit for FPI investment in G-secs,
however, was kept unchanged at $30 billion.
September 2014: In order to address operational issues faced
by FPIs and long-term foreign investors, it was decided to
provide extended reporting timings on trade date and an option
for T+2 settlement for secondary market over-the-counter
trades in G-secs for such investors.
February 2015: As the FPI limit G-secs (capped at $30 billion)
was fully utilised, RBI allowed FPIs to reinvest the coupon of
G-secs over and above the exhausted limit. Additionally, FPIs
were restricted from investing in corporate bonds of maturity
below 3 years in line with regulations for G-secs. They were

7- and 14-day term repos from 0.5% of net demand and

time liabilities (NDTL) of the banking system to 0.75%, and
decreased the liquidity provided under overnight repos
under the liquidity adjustment facility (LAF) from 0.5% of
bank-wise NDTL to 0.25%.
June 2014: RBI reduced the liquidity provided under the
export credit refinance (ECR) facility from 50% of eligible
export credit outstanding to 32% and introduced a special
term repo facility of 0.25% of NDTL to compensate fully for
the reduction in access to liquidity under ECR.
September 2014: RBI reduced the liquidity provided under
ECR facility from 32% of eligible export credit outstanding
to 15%.
February 2015: RBI replaced the ECR facility with the
provision of system level liquidity

11

also restricted from investing in short-maturity liquid/money

market mutual funds. With a view to providing greater flexibility
to both FPIs and domestic participants in the exchange traded
currency derivatives (ETCD) market, domestic entities and FPIs
were allowed to take foreign currency positions in the USD-INR
pair up to $15 million per exchange without having to establish
the existence of any underlying exposure. In addition, they were
allowed to take foreign currency positions in EUR-INR, GBP-INR
and JPY-INR pairs, all put together up to $5 million equivalent
per exchange, without having to establish the existence of any
underlying exposure. Domestic entities and FPIs looking to take
a position exceeding the above limits in the ETCD market were
asked to establish the existence of an underlying exposure.

Implications for mutual funds

Budget announcements

Increase in deduction under Section 80 C to Rs 1.5 lakh

Steps taken for capital markets

Move to increase the holding period for long-term capital

brings cheer to equity linked savings schemes.

A uniform KYC (know your customer) norm proposed, with

12

corporates abroad, extending validity of the scheme to June

30, 2017. (Currently, the tax rate varies across bonds and
could be higher as well).
A modified real estate investment trust-type structure
proposed for infrastructure projects to be announced as
infrastructure investment trusts, with a similar tax-efficient
pass through status, for public-private partnership and
other infrastructure projects.
Addressing the tax concerns of FPIs, the finance minister
proposed that income arising to this class of investors from
transaction in securities will be treated as capital gain

inter-usability of KYC records across the entire financial

sector and a single demat account so that consumers can
access and transact all financial assets through this one
account.
International settlement of Indian debt securities proposed
and the Indian depository receipt scheme completely
revamped.
American depository receipt/ global depository receipt
regime liberalised to allow issuance of depository receipts
on all permissible securities.
It was proposed that financial sector regulators take early
steps for a vibrant, deep and liquid corporate bond market
and deepen the currency derivatives market by eliminating
unnecessary restrictions.
The finance minister mooted extension of a liberalised
facility of 5% withholding tax to all bonds issued by Indian

gains tax for fixed-income funds from 12 months to 36

months has tax implications for investors in debt mutual
fund schemes. The applicable tax rate on long-term capital
gains will now be 20% on the nominal long-term capital
gains indexed for inflation.
The finance minister removed an anomaly in dividend
distribution tax (DDT) where effective tax rate was lower
than the actual tax rate. Investors earning dividend income
will receive lower dividend post the DDT amendment
effective October 1, 2014.

Depth wish in three steps

13

The corporate bond market has a large footprint in developed

countries. In India, however, despite a string of measures over
the years, it remains a shallow arena.
In terms of transacted volume, corporate bonds are way smaller
than government securities.
Not surprisingly, between 2010 and 2015, market penetration,
measured by amount outstanding to GDP, has increased only
marginally from 10.31% to 16.74%.
But heres the sobering perspective: corporate bond markets in
emerging economies tripled in size to $6.9 trillion in 2014 from
$1.9 trillion in 2005 (IOSCO working paper, September 2015).
Yet thats puny compared with total global debt (including
households, corporate, government and financial), which stood
at ~$199 trillion in 2014, according to a McKinsey estimate.
And thats not because corporate bond market evangelists are
few and far between. Its development has been an oft-repeated
theme across research papers and conferences for well over a
decade.
We believe the time to identify and pursue actionable steps
to deepen Indias corporate bond market is nigh. We believe
three of these are critical because they have facilitated market
growth in developed nations:

i.

Increasing investor demand

India has a gross domestic savings rate of 33% of GDP, among

the highest in the world. Close to 40% of the total savings
are financial savings, of which 47% are in fixed deposits. It
is interesting to note that the fixed-income nature of bank
deposits appeals to Indian investor psyche. But bonds, despite
being fixed-income instruments, do not have the same appeal.
Therefore, we believe investment products such as mutual
funds, insurance and pension funds have the best chance of
mobilising financial savings to corporate bonds in India. Even in
the US, close to 70% of bond issuances are consumed by MFs,
insurers and pension funds. The numbers in India are nothing to
write home about, as Table 1 suggests.
Table 1: Institutional investment in corporate bonds in FY15
Corporate
bonds (Rs cr)
EPFO

182,128

636,039

28.63%

Corporates*

137,708

1,032,299

13.34%

Banks

267,765

2,983,576

8.97%

FPI

181,781

2,320,539

7.83%

MFs

250,054

1,194,774

20.93%

Insurers

420,349

2,344,228

17.93%

1,439,786

10,511,455

13.70%

Total
Increasing investor demand

Total investments % investments in

(Rs cr)
corporate bonds

*Data based on FY13, FY14 and FY15

Source: Websites and reports of corresponding regulators

Transitioning from bank loans to bonds

Developing facilitative infrastructure

We look at each measure in detail:

*Source ICI, NAIC, IOSCO Pension statistics

14

Currency conversion ready reckoner

10 lakh
1 crore
1 lakh crore

= 1 million
= 10 million
= 1 trillion

A six-point agenda to draw investors

There is significant potential to expand the number of
investors and their contribution to bond markets. The key
steps that can be taken to address this are:
i. Investor awareness: This is one of the most difficult
areas to handle. Communicating the benefits and risks
associated with investment in debt, through direct
or indirect channels, requires sustained efforts from
policymakers and market participants. Interestingly,
debt products are easier to explain than equity as in
most cases the return (coupon) can be stated upfront.
This may, however, not apply to products offered through
indirect channels such as mutual funds because they
are marked to market. Absolute-return products can be
an option to mitigate this issue.
ii. Simple and timely communication to investors on
issues such as suitability of the product, impact of risks
and return expectations would help them relate to the
product better.
iii. Development of new products: It is equally important
to develop new products that are likely to meet varied
investor needs such as known investment horizon and
assured returns. Structured products that incorporate
these features can be an attractive option for investors.
Fixed-income exchange-traded funds (ETFs) can
also be popularised as they have emerged as a
preferred vehicle for investment globally. The US has
observed close to 20% CAGR in ETF assets over the
10 years to 2014. Fixed-income ETFs account for
close to 15% of the overall US ETF market, which is
valued at $2 trillion (ICI Factbook, 2015). ETFs have
inherent advantages such as low cost, tax efficiency,
higher transparency and liquidity, and low ticket size.

Taxation is a crucial influencer of investor decision.

Compared with equity products, debt products
are currently less tax-efficient. And within debt
products, mutual funds and insurance plans are
relatively more tax-efficient than direct investments.
Tax incentives have, in the past, helped channel
savings to financial assets such as insurance and
retirement products, equity-linked savings schemes
and infrastructure bonds. A tax sop also has a
positive psychological impact as investors recognise
it as a de facto product from the government.
Initiatives such as Rajiv Gandhi Equity Savings
Scheme can also be replicated for corporate debt
products.
Globally, tax sops have been a successful medium
to incentivise transition of wealth to investment
products. For instance, in the US, the introduction of
pre-tax, defined-contribution 401(k) retirement plans
in 1978 propelled growth in the mutual fund industry
and, consequently, its capital markets.
iv. Increase share of organised sector employment:
Increase in the share of organised sector employment
will help bring in a larger section of working population
under the ambit of retirement products such as
Employees Provident Fund and the National Pension
System. Additionally, mandatory contribution to pension
can be considered. For instance, in the 1980s, Chile had
mandated citizens to park their wealth with institutional
investors -- a move that has been instrumental in
development of the corporate bond market there. So
much so, after the diktat, assets of Chilean pension
funds increased to almost 54% of GDP in 2000 compared
with the negligible level seen in 1980.
v. Increase role of financial intermediation: Intermediation
is key to the success of financial products. Different

15

segments of intermediaries spanning the organised

sector, such as banks, national distributors, and
unorganised agents/ advisors need to be appropriately
incentivised to reach out to the large investor base.
vi. Increase participation of foreign investors: In addition
to retail investors, steps to increase the participation
of foreign investors need to be encouraged big-time.
India needs to develop mechanisms for foreign portfolio
investors to manage foreign exchange risk, encourage
their access to derivatives markets and enhance
use of debt investments as collateral, among other
possible measures. Favourable tax laws, inclusion in
key emerging market indices, strong laws and policy to
settle disputes will also attract more foreign portfolio
investments into the corporate bond market.

ii.

Transitioning from bank loans to bonds

Bank financing is by far the most preferred mode of funding

in India today. Corporate bonds outstanding to bank loans
(corporate) was 26.5% as on December 31, 2015. Various factors
such as difference in pricing, accounting/valuation treatment
for an asset, time lag permitted for recognition of event of
delayed payment/default etc., have contributed to the arbitrage
that exists at present between loans and the capital market.
Transition from loans to bonds, we believe, will lead to a
deepening of the debt market. The measures that can be taken
in this regard are:
i. Provide impetus to securitisation market by encouraging
insurance companies and provident funds to invest in
long-term mortgage-backed securities; persuading banks
to securitise their housing and infrastructure portfolios;
and, enhancing market for innovations such as commercial
mortgage-backed securitisation transactions, toll road

16

receivables, annuity receivables and education receivables.

ii. Remove loan-bond arbitrage by measures such as allowing
banks to classify (and reclassify) bond and loan assets
into held-to-maturity or available-for-sale buckets based
on their declared intention rather than automatically
based on legal documentation. Additionally, reducing the
statutory liquidity ratio requirement will free up capital. And
the implementation of Basel III norms requiring banks to
maintain high-quality liquid assets will push banks to invest
in corporate bonds.
iii. Limit the amount of bank loan that can be taken by specific
category of borrowers -- say for instance, large borrowers.

The name is bond

There is significant scope to expand Indias debt market,
which, at ~17% of GDP as of December 2015, is rather small
compared with 123% for the US and 77% for South Korea.
The country compares poorly even some emerging market
economies such as Malaysia, Thailand and China.
The government, the Reserve Bank of India (RBI) and
the Securities and Exchange Board of India (SEBI) are
contemplating measures to promote corporate borrowings
from the bond market. These will benefit corporates
in terms of both diversification of funding sources and
reduction in cost of borrowings. While these efforts are
just what are needed, structural measures to deepen and
improve access to -- the bond market face headwinds.
Challenges for corporates in accessing the bond market
Illiquidity
High cost of issuance and higher interest rates
Lack of well-functioning derivatives market
Regulatory restrictions, and
Insignificant retail participation

Measures taken/proposed to develop bond markets

Review of framework for large exposures: The RBI

has floated a discussion paper on enhancing credit

supply for large borrowers through a market-based
mechanism. The guidelines could reduce concentration
of bank exposure to large borrowers and help expand
the bond market.
Managing primary issuances: Primary market
issuances have suffered because of high cost of
issuances and narrow investor base. To address
this, SEBI plans to introduce an electronic auction
platform for primary debt offers, to develop an enabling
ecosystem for the private placement market in
corporate bonds.
Information repository: A complete information
repository for corporate bonds covering both primary
and secondary market segments will be developed
jointly by the RBI and SEBI.
Innovative instruments such as masala bonds: The RBI
had issued guidelines in September 2015 for masala
bonds denominated in rupees where the credit
risk and currency risk lie with the investor and has
recently reduced the tenure to 3 years from 5 (similar to
government securities) to make them more attractive.
Promoting derivatives market for hedging: One factor
constraining bond market expansion has been the
absence of a well-functioning derivatives market
that could absorb risks emanating from interestrate fluctuations and default possibilities. Taking
cognisance of this issue, the RBI has issued guidelines
for interest rate futures and credit default swaps.
Settlement: The government has been considering a
proposal to join Euroclear, the worlds largest securities
settlement system. This would allow investors such as

sovereign wealth funds to settle Indian government/

corporate bonds on the system, which has been a longstanding demand.
Easing investment norms: Investment norms for
insurance companies, banks and pension funds in India
are heavily skewed towards government and public
sector bonds (only 15% of funds can be invested in
corporate bonds below AA rating). Easing of such norms
and increased retail participation will increase liquidity.

While steps are being taken to encourage corporates to

access the capital market for debt funding, the recent
guidelines to banks on pricing of loans using marginal cost
lending rate, which allows banks to have multiple base rates
at different tenures, has made bank loans more competitive
compared with commercial paper. This could lead to a shift
of short-term borrowing from the commercial paper market
to bank loans.

iii.

Develop facilitations with North Block

oversight

Facilitative policy measures, both from the perspective of

investors and issuers, are a sine qua non. Setting up of a
team or department of experts within the Ministry of Finance,
whose mandate will be to facilitate the development of
Indias corporate bond market, and follow up on relevant
implementation initiatives, will be a huge help. Some of the
measures that can be taken up by such a department are:
i. For investors
1. Facilitate liberalisation of investment policies of key
market participants by permitting them to take higher

17

exposure to corporate bonds across the rating spectrum.

For instance, provident and pension funds, which
manage some of the largest corpuses in India, have
caps on investments in corporate bonds. The Employees
Provident Fund Organisation (EPFO) can invest only 45%
of its incremental investments into corporate bonds
and that too only in public issuers rated AA and above.
Only 10% of incremental investments are permitted in
private issuers that meet specific eligibility criteria such
as dual AAA ratings, consistent profit track record and
dividend history, among others. Introduction of the new
investment norms for retirement funds has opened up
investment options and has, therefore, been a welcome
step. However, the new pattern still limits investments
in corporate bonds up to the AA category, unless credit
default swap, or CDS, protection is taken. The CDS
market, ironically, is almost non-existent in India.
2. In comparison, in developed pension markets, regulators
do not impose any investment limit. In emerging pension
markets, too, limits are being relaxed. Countries such as
Australia, Canada, Korea, Germany and Japan impose no
limits for investment in bonds. In the US, limits are only
for employees subscribing to employers bonds. Sweden
has a limit of 75% for non-state or equivalent papers.
Emerging pension markets such as Chile have restrictions
ranging from 40% to 80% in case of lifecycle funds, and
investments up to 5% are permitted in non-investment
grade securities. Brazil and South Africa allow 80% and
75% allocation, respectively, to corporate bonds.
3. Even if policies mandate exposure only to higher-rated
bonds, facilitation of a credit enhancement mechanism
by creating innovative instruments such as partial
guarantee, securitisation of annuity in highway projects,
securitisation of receivables by municipal corporations
can be considered. This will also allow issuers/ projects
with moderate creditworthiness to access the corporate
bond market. It also meets investor need for higher credit

18

quality. Partial guarantee mechanism permitted for banks

has not been effective due to provisioning norms and
lower reward to risk. Since September 2015, when banks
were permitted to extend partial credit enhancement
(PCE) to corporate bonds, there havent been any
transactions based on it. The reason for this is the upper
limit of 20% PCE set for a bond issue. Contemporary
experience suggests the PCE requirement has exceeded
that in majority of successful transactions. Also, issuers
seem to be concerned about the PCE commission charged
by banks, which could add 30-50 basis points to cost.
Added to this, higher yield sought by investors because
of the structured nature of the transaction compared
with a vanilla instrument of a similar rating has further
eroded attractiveness. In this context, an institution
such as the proposed Bond Guarantee Fund of India
(BGFI) could prove helpful if it extends full guarantee.
These structures would be simpler to understand for
investors and would be significantly comforting. Credit
enhancement mechanism from multilateral institutions
and the BRICS Bank can also be evaluated for this. Given
the limitations faced by banks in extending third-party
guarantees, some emerging markets have introduced
agencies that specialise in providing financial guarantees
to lower-rated corporations only. For example, in Malaysia,
the government has established Danajamin Nasional
Berhad, which provides financial guarantee and credit
enhancement for corporate bonds, thereby affording
access to non-AAA rated issuers.
ii. Develop standard and independent valuation practices to
reduce arbitrage on account of pricing
Across financial markets in India, different rules are laid
down by regulators for valuation of assets, especially
corporate bonds. In some cases, multiple approaches are
prescribed by the same regulator depending on the period

Investments in corporate bonds rated below AA are permitted if the exposure is hedged through CDS protection. The CDS market is virtually non-existent today.

for which investments are held. For example, banks follow

different valuation norms for held-to-maturity, held-fortrading and available-for-sale portfolios. Likewise, different
insurers value the same corporate bond differently if
held in both unit- and non-unit-linked portfolios. Even in
cases where mark-to-market valuations are prescribed,
approaches vary across participants. For instance, some
financial products do not recognise the intra-rating spread
on account of credit perception and illiquidity that exists
between securities. This leads to differences between
the prices used for reporting and the actual realisable
value of the asset. Besides mispricing of investments,
such anomalies hinder price discovery, which is critical to
ensure that appropriate risk-to-reward relationship exists
to incentivise investors. Over time, these measures should
translate to more efficient pricing in case of bank loans.

As for bankruptcy, regulation in the United States has proved

effective. In the UK, after 12 months of a case being filed for
bankruptcy, there is either discharge with part of the assets
being used to pay off debts, or, in situations where companies
can be turned around, court-appointed administrators handle
cases. And German insolvency law is applicable to both
individuals and firms, with independent court-appointed
insolvency practitioners helping in realising assets or
reorganising the business.

iii. Incorporate strong and stable legal and regulatory

framework and simplify process to settle financial disputes,
and enforce laws for insolvency and bankruptcy.
Current legal structures dont seem to be effective as
delays and high costs involved in legal procedures relating
to enforcement of debt contracts and corporate insolvency
increase the risk to corporate bond investors. Also, in case
of a default on a debt instrument, the process of liquidation
to repay a bond investor is important. The Recovery of
Debts due to Banks and Financial Institutions (RDBF) Act
and Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest (SARFAESI) Act
address the concerns for financial institutions and banks
only. A significant step in correcting this has been the
recommendations made by committee headed by former
law secretary T K Viswanathan. Once accepted, many of the
suggestions are expected to help improve the situation.

19

20

The structural story is

turning conducive

21

For any corporate bond market to make economic sense,

there has to be depth in terms of liquidity and breadth in
terms of products. Only then can it play the role of an efficient
matchmaker between borrowers and investors/savers.
For ages now, financing from banks has been the default mode
for Indian companies, with money market instruments such as
commercial papers and certificates of deposits providing shortterm funds.
For a corporate bond market to deepen, right macroeconomic
environment is as necessary (and seems nigh in India) as strong
regulations and legal framework, deep institutional investor
base, efficient infrastructure and a vibrant derivatives market.
Studies show that countries with robust, stable and predictable
macroeconomic fundamentals have witnessed rapid
development of their debt markets, especially for corporate
bonds. For example, bond volume in Brazil and Mexico surged
after governments there reined in inflation in the past ten years
(Bond Market Development in Emerging Asia, ADB Economics
Working Paper Series, No. 448, 2015).
In contrast, in Philippines, where the macroeconomic
environment has been volatile, the corporate bond market has
had to lean heavily on government support to survive.
After a smart recovery from the global financial crisis, Indias
GDP growth had slid into a sub-6% in fiscal year 2013 because
of the emergence of factors detrimental to the business climate.
Domestic constraints, such as policy logjam in mining, delays
in approving projects, and tardy implementation of cleared
projects, were the major reasons. In addition, monetary and
fiscal stimulus had to be withdrawn due to rising inflation and
fiscal stress. This had pulled down growth and put India in the
Fragile Five -- a reference to BRICS nations by IMF.

22

Indian banks prolonged struggle with bad loans and the Reserve
Bank of Indias (RBI) recent moves to clean those Augean stables
are indeed cautionary tales. It therefore makes eminent sense
to course-correct and derisk Indias financing ecosystem and
unclog its corporate-finance plumbing by gravitating towards
term financing and corporate bonds rather than let the system
be a one-trick pony riding on bank loans.
India goes from vulnerable to resilient
FY13

FY14

FY15

FY16E

FY17F

GDP growth (%)

5.6

6.6

7.3

7.6

7.9

Inflation (%)

10.2

9.5

6.0

4.9

CAD / GDP (%)

4.7

1.7

1.3

1.3

1.4

Fiscal deficit /
GDP (%)

4.8

4.6

4.1

3.9

3.5

Exchange rate
(Rs/$, Marchend)

54.4

60.1

62.6

66.3

65.0

10-year yield
(March-end)

7.9

8.8

7.7

7.5

7.3

Investment /
GDP (%)

34.1

33

32.3

31.6

31.7

GNPA /
advances (%)

3.3

3.8

4.3

6.8

7.7

Over the last 2-3 years, India has transited from being a
vulnerable economy to one with robust macroeconomic
fundamentals and promising growth prospects.
From a macroeconomic perspective, there are three prerequisites to a deep and well-functioning corporate bond
market:
1.

Low and stable inflation

2.
3.

Prudential fiscal policy

Currency stability

Globally, low and stable inflation has boosted bonds

Empirical studies have shown that lower and stable inflation
facilitates a conducive environment for a deeper and mature
corporate bond market.
US academicians John D Burger and Francis E Warnock
analysed 49 local bond markets (National Bureau of Economic
Research working paper 12552, 2006) and found that stable
inflation has a significant positive impact on the ratio of local
bond market size to GDP, and on the share of a countrys
outstanding local-currency bonds.
Indias inflation has been steadily moderating since 2014, falling
to an average 4.9% in fiscal 2016 from 6% in fiscal 2015, and
from double-digit rates in the preceding five years. It would be
apposite, therefore, to ask the question, what was the cause
and how durable is the decline in inflation?
While exogenous factors such as the decline in crude oil and
other commodity prices contributed significantly to controlling
inflation, credit must be given to the RBI and the central
government for their well-coordinated and quite proactive
moves.
To control food inflation, the government has exercised
restraint by offering muted growth in minimum support prices,
and deployed its stock effectively to offset the impact of two
consecutive droughts. Other steps, such as advising states to
allow free movement of fruits and vegetables by delisting them
from the Agricultural Produce Marketing Committees (APMC)
Act, and developing a national agricultural market, are also
long-term positives for food inflation.

Perhaps the most important factor is the new monetary policy

framework, agreed to by the RBI and government, which
focuses on lowering inflation. The RBI targeted 6% inflation in
fiscal 2016 and 4% in 2018, with a band of 2% on either side,
in subsequent years. The framework also requires the RBI to
semi-annually provide details on sources of inflation and its
forecasts for 6-18 months. The framework will result in greater
transparency and predictability about the central banks actions
and bring more credibility to the monetary policy. A positive
spillover from this would be greater predictability about wage
growth, government bond yields, and consumers purchase
decisions. It also offers a conducive environment for deepening
the corporate bond market.

Why does a commitment to fiscal consolidation matter?

Fiscal policy influences private sector participation in the
corporate bond market in a number of ways. For one, a high
fiscal deficit is a negative because it reduces available savings
pool for the private sector to draw from. Burger and Warnock
showed a wider fiscal deficit expands the government bond
market, but not the corporate bond market. Economists Matias
Braun and Ignacio Briones, in their 2006 paper titled The
Development of Bond Markets Around The World, also show
that larger government bond issuances crowd out corporate
bonds.
Silvia Ardagna of Harvard University, in a 2009 paper on the
behaviour of financial markets in Organisation for Economic
Cooperation and Development (OECD) economies around
episodes of large changes in the fiscal stance between 1960
and 2002, showed that the governments fiscal position has a
significant impact on economy-wide interest rates, particularly
those of long-term government bonds.
While periods of fiscal consolidation gave room for interest
rates to decrease by 124 basis points on an average, fiscal

23

expansion pushed up rates by as much as 162 basis points.

Moreover, during phases of fiscal expansion, interest rates
of 10-year government bonds as well as corporate bonds are
estimated to increase irrespective of the economys initial
fiscal position. The governments fiscal stance is shown to
impact even the short-term government bonds such as the
3-month treasury bills. In effect, lower fiscal deficit softens the
benchmark yield curve, which is the key to pricing corporate
bonds, Ardagna noted.
It can thus be inferred that fiscal consolidation will reduce
interest rates on government bonds/government bond yields,
which, in turn, will lower rates in the corporate bond market and
make it attractive to issuers.
A recent example of this is when yields on government
securities hardly budged despite a 150 bps interest rate
reduction by the RBI starting January 2015. However, they came
down swiftly after the Union Budget announced adherence to
the fiscal consolidation path.

Currency stability becalms investors

Currency volatility is another macroeconomic factor that
controls foreign investments in local bond markets. From being
the worst-performing currency in 2013 after the taper tantrum
stoked by the US Federal Reserves stated intent of withdrawing
the quantitative easing programme, the rupee has become one
of the best-performing, low-volatile currencies over the past
one year. This has been because of improving macroeconomic
fundamentals, good luck from low commodity prices, and
proactive government policies. Not surprisingly, there has been
an upsurge of foreign investments into India.

Conclusion
It is well known that domestic savings will not be sufficient

24

to meet the long-term investment requirement for Indias

infrastructure build-out and socio-economic development.
In advanced economies, populations are ageing leading to a
significant increase in the corpus and number of pension
funds seeking long-term investment opportunities with high
yields and stable returns.
However, growth prospects for advanced economies seem
limited, with economists such as former US Treasury Secretary
Larry Summers calling it a phase of secular stagnation where
return on capital is low amid low growth and deflation.
Former US Federal Reserve governor Ben Bernanke has
suggested that in such a phase, economies should invest in
emerging market economies with strong growth prospects.
It is a no-brainer that India is currently one of the strongest
emerging markets with strengthening macroeconomic
fundamentals.
Economies with investible funds such as Japan, Germany,
Korea and China export capital either through foreign direct
investment or through pension funds and insurance companies,
which primarily focus on bond investments. India should use
this opportunity to attract capital towards the corporate bond
market.
More foreign participation in the corporate bond market will
push down yields, further widening the gap between corporate
bond yields and bank lending rates. Lower bond yields will
attract the private sector and help improve the depth and
breadth of the bond market.
It is for the stakeholders led by the government to grab the
opportunity with both hands and facilitate conditions to finally
do whats been a longstanding demand of deepening Indias
corporate bond market and making it a viable alternative to
bank financing.

References: John D Burger and Francis E Warnock (2006). Local Currency Bond Markets. IMF Staff Papers Vol 53, 2006, John D Burger and Francis E Warnock (2015).
Bond Market Development in Emerging Asia. ADB Economics Working Paper Series, No 448, Silvia Ardagna (2009). Financial Markets Behaviour Around Episodes of Large
Changes in the Fiscal Stance. European Economic Review 53 (1): 37-55, World Economic Forum (2015) Accelerating Emerging Capital Markets Development Corporate
Bond Markets

A brave new financial order

25

Banking in India is undergoing a sea change. After years of

restricted licensing, the Reserve Bank of India (RBI) has opened
the floodgates by awarding as many as 23 licences in different
categories over the past two years.
While two of these are licences for commercial banking, the
rest are for niche or differentiated plays, including 11 payments
banks and 10 small finance banks. The regulator has announced
its intention to issue licences virtually on-tap, including for two
more categories -- wholesale banks and custodian banks.
The new banks are expected to usher in innovation, offer
customers greater choice and spawn customisation of financial
services. The service offerings under each category are as
follows:

Payments banks will provide the large unbanked rural

26

and semi-urban population an option of a formal deposit

account and transaction capability.
Small finance banks will give small non-banking finance
companies (NBFCs) and microfinance institutions (MFIs),
who are the primary providers of credit to small scale
industries and small borrowers typically under-served
by commercial banks, an option to garner less expensive
resources in the form of deposits.
Wholesale banks will provide long-term loans to corporates
for projects with long gestation periods. Commercial banks
face limitations in lending to infrastructure projects, given
a mismatch between their shorter-tenure resource profile
and the longer-tenure needs of infrastructure projects. This
leads to infrastructure projects getting starved for funds or
ending up borrowing at high costs.
Custodian banks will hold financial assets such as cash,
stocks, bonds, commodities, metals and commercial papers
for their clients. While existing banks provide these services,
a flourishing capital market, which the RBI is aiming for, will
be better served by specialised custodian banks.

Efforts are also on to make the existing models more efficient.

Towards this:

The RBI plans to bring peer-to-peer lending, which has

gained traction in the past year or so, under the ambit of

regulation.
Today, while wallets have become a popular mode of
payment for e-commerce transactions, other small
payments remain dependent on cash. To facilitate
movement towards a cashless economy, the RBI has
launched the Unified Payment Interface (UPI).

But will these different objectives be met given competition

from existing players and a dynamic environment? The
opportunities and challenges for each category would be as
follows:

Payments banks: Tapping the large domestic remittance

market, gathering savings deposits and sourcing loans

for the conventional banking channel largely from underbanked and unbanked regions of the country are areas these
banks can look at. Another opportunity lies in effective
use of technology to capture a share of e-commerce
transactions through wallets. However, here, the banks
face serious competition from existing banks, with Jan
Dhan Yojana bringing a large chunk of the population into
the formal banking channel and the launch of UPI possibly
rendering wallets redundant.
Small finance banks: Going beyond the current customer
segments (non-banking finance companies or NBFCs, and
microfinance institutions), the opportunity for these banks
lies in gaining access to a new source of funding deposits
and the added ability to offer transactional products.
The conversion into a bank will not be easy though, given
competition for resources from commercial banks and
payments banks.

 Wholesale banks: Conversion into a wholesale bank may

be an opportunity for wholesale NBFCs, but garnering

long-term resources will be a bigger challenge than getting
savings deposits. While they might be exempt from priority
lending requirements, meeting liquidity requirements may
also pose a challenge.
Custodian banks: Success of custodian banks will depend
on deepening of the capital market and their ability to
differentiate themselves from large global players and
domestic commercial banks. Further, the returns from
this model may be low and will be sensitive to business
volumes.

27

28

Dawn of the bankruptcy code

29

Indias Parliament approved the long-awaited Insolvency and

Bankruptcy Code, 2016, which heralds a significant shift to a
creditor-friendly ecosystem of identification and resolution of
insolvency.
According to a World Bank study, it takes more than four years -or twice the time taken in China to resolve insolvency in India,
while recovery of debt, at ~25% is among the worst in emerging
economies and way behind global average.
The code supersedes several provisions in extant laws related
to insolvency the Sick Industrial Companies Act (SICA), the
Recovery of Debt due to Banks and Financial Institutions,
Companies Act (RDDBI) and the SARFAESI Act and intends to
make resolution quicker and easier within a defined time period
(180-270 days).
Going ahead, the time required to build out the new ecosystem,
availability of skilled professionals, and capacity creation in
debt recovery tribunals are crucial to the success of code.
Key features of the Insolvency and Bankruptcy Code

Repeals and replaces set of outdated laws: The code

30

repeals several outdated laws (such as the Presidency

Towns Insolvency Act, 1909, and the Provincial Insolvency
Act, 1920). Additionally, it also amends 11 other existing
laws which will facilitate quicker insolvency proceedings.
Creditor-friendly: Defaulting firms/individuals got a
long rope under extant legislations, while the new code
recognises the rights of creditors (both financial and
operational) and gives them an effective role in the
insolvency resolution process.
Focus on revival plans, faster resolution: The code lays
down procedure for revival of distressed firms/assets
which involve negotiations between debtors and creditors
to draft a revival plan. In case a revival plan cannot be

negotiated upon within the prescribed time frame, the firm

will automatically go into liquidation, proceeds of which will
be paid to creditors based on a pre-fixed order of priority.
The new code is better at preserving the value of assets and
distinguishes malfeasance versus business failure, thereby
helping recoveries.
Clarity on distribution of liquidation proceeds: As per the
code, proceeds from liquidation will be distributed based
on an order of priority with employee dues/secured debtors
coming first followed by other employees (non-workmen)
and then unsecured creditors and finally the government.
Addresses cross border insolvencies: Given that Indian
firms operate in different jurisdictions, the code deals with
resolution process of cross-border insolvencies as well. The
government may enter into agreements with other countries
to enforce the provisions of the new code.
Penalties for offences: The code has penal provisions
for offences committed under corporate/individual
insolvencies. This involves concealing properties,
imprisonment of up to five years, or a fine of up to Rs 1 crore
(Rs 5 lakh for individuals) or both based on the nature of
offence.
Wider coverage: The code will cover companies, limitedliability entities (including limited-liability partnerships),
unlimited-liability partnerships and individuals. It treats
both type of creditors -- operational (employees, workmen,
contractors) and financial (banks, non-banking finance
companies) -- fairly, and clearly defines their roles in
insolvency resolution.

Governing framework

Insolvency regulator: The code proposes to establish an

insolvency regulator to exercise oversight over insolvency

professionals and their agencies, and informational utilities.
The regulators board will have 10 members, including
representatives from the central government and the RBI. It

will register information utilities, insolvency professionals

and insolvency professional agencies under it, and regulate
their functioning.
Insolvency adjudicating authority: The adjudicating
authority will have the jurisdiction to hear and dispose of
cases by or against debtors. The Debt Recovery Tribunal
shall be the adjudicating authority with jurisdiction over
individuals/unlimited liability partnership firms, while
the National Company Law Tribunal (NCLT) shall be the
adjudicating authority with jurisdiction over companies and
limited liability entities.
Insolvency professionals: The insolvency resolution
process will be managed by a licensed professional,
who will also control the assets of the debtor during
the resolution process. The code also proposes to set
up insolvency professional agencies, which will admit
insolvency professionals as members and develop a code
of conduct and evolve performance standards for them. The
new law proposes that private practitioners (CAs, lawyers)
can be appointed as company administrator/liquidators be
lenders or the tribunals.
Information utilities: The code establishes multiple
information utilities to collect, collate and disseminate
financial information related to a debtor. This will include a
record of debt and liabilities of the debtor.

During the insolvency resolution period (180 or 270 days),

Impact of the code

Quicker resolution of financial distress: Under the existing

Insolvency resolution process

If the underlying business is found viable, the code prescribes
a timeline of 180 days (which can be extended to 270 days by
the adjudicating authority in exceptional cases) for arriving at
an insolvency resolution plan. The process is largely similar for
individual cases, too.

Any financial or operational creditor can begin insolvency

proceedings on a default. The borrower himself could also

initiate an insolvency petition.

debtors assets and management control will be transferred

to the insolvency professional.
The resolution plan prepared by the insolvency professional
has to be approved by financial creditors a committee of
creditors with 75% of voting shares.
Once approved, the plan has to be sanctioned by the
adjudicating authority. But if rejected, the authority will
order liquidation.
If the aggrieved party is not satisfied with the adjudicating
authoritys order, they can appeal to the appellate tribunal,
NCLAT (National Company Law Appellate Tribunal) and
DRAT (Debt Recovery Appellate Tribunal). This has to be
done within 30 days of such order. Further, appeals against
an NCLAT or DRAT order can only be made to the Supreme
Court, within 45 days of such order.

framework, a significant amount of time is wasted in

recognition and resolution of a case of financial stress.
The delays cause severe impairment of assets and reduce
their economic value. However, under the new code,
insolvency professionals chalk out a revival plan within
defined timeframe and if creditors dont agree, the firm
automatically goes for liquidation. The code thus facilitates
faster resolution and therefore preserves the value of
assets.
Facilitate ARCs in recoveries: The recovery experience of
ARCs isnt significantly better (~36% as per CRISIL) given
the limitations within the existing framework. However,
in the long run, effective implementation of the code will
change the environment and attract investments to the
distressed assets space, open up new avenues for ARCs and
help them participate in the huge market for NPAs.

31

 Deterrent for wilful defaulters / frauds: Stringent provisions

under the code with appropriate safeguards built for the

creditors will act as a strong deterrent for wilful defaulters.
This, in turn, will help in improving credit discipline in the
system over the long term.
Boost investor confidence: Investors shy away from
corporate bonds rated below AA category given the higher
risk of default and abysmal recoveries. The new code will
now lend confidence to investors and therefore can increase
liquidity in lower-rated papers over the medium term.
Aid higher productivity and economic growth: With the
implementation of the code, Indias position in World
Banks rankings of ease of doing businesses will improve,
attracting more foreign investors. Given the quick resolution,
the assets can be put to use which will enhance productivity
levels and hence aid economic growth.
Boost entrepreneurship and other stakeholders: The
code will encourage entrepreneurship, and will benefit
several other stakeholders including corporates (quicker
recognition of stress), start-ups (easier exit if business
turns unviable), and employees/workmen (priority on
payment of liquidity proceeds).

Global experience
Several developed countries such as the US, the UK and Japan
have robust insolvency resolution frameworks. Consequently,
these countries enjoy much ease of doing business rankings.
Even emerging markets such as Russia, China and South Africa
have better rankings than India. While insolvency frameworks
are many across nations, operational characteristics vary in
terms of nature of resolution, assets in possession, debtor
involvement, and the timeline for finalising a revival plan.
For instance, the US has a framework based on the nature of
resolution, while Canadas is based on the size of the entity. In
several developed economies, insolvent assets are mostly kept
with debtors and they are involved in the resolution process.

32

Easing regulatory bottlenecks

33

For the corporate bond market to be able to contribute to nation

building, it is imperative to ease the regulations that are holding
back investments.
To be sure, key institutional investors in the market, such as
mutual funds, banks, retirement funds, insurance companies
and foreign portfolio investors, are governed by different
regulators and policy frameworks. These frameworks typically
prescribe limits based on the rating category, group entities,

maturity profile, listing status and financial parameters

(networth, dividend, profitability, etc) all intended to protect
the ultimate investor. This, however, has caused a skew towards
government securities (G-secs) and higher rated papers.
Hence, there is a need to evaluate whether these limits stand
the test of time and relevance, and accordingly reassess and
redefine these to match the dynamism of capital markets.

Table 1: Investment provisos at various institutions

Regulations

EPFO

Life insurance

Limits on
corporate bonds
investments

35-45%

Up to 45% for
government
employees;
no restriction
under NPS
for all

Not exceeding
50%

Additional
requirements

Minimum
three-year
residual
maturity;
minimum AA
rating from two
agencies; can
invest up to 5%
in ABS/ MBS/
REITS/ InvITs

Minimum
three-year
residual
maturity;
minimum AA
rating from
two agencies;
can invest up
to 5% in ABS/
MBS/ REITS/
InvITs

Minimum
investment
of 15% in
housing and
infrastructure;
maximum
investment of
15% in
securities
rated below
AA and ABS/
MBS, 5% in
securities
rated below A

Source: Websites and reports of corresponding regulators

34

PFRDA

Pension
and group
business
Not
exceeding
60%

General
insurance

Mutual
funds

FPI

Banks

Not
exceeding 70%

No limit

$51 billion,
or
Rs 244,323
crore

NA

Minimum
investment of
5% in
housing, 10% in
infrastructure;
investment in
securities rated
below AA and
ABS/MBS maximum 25%

Issuer
limit 10%
single issuer
for debt.
In unrated
papers,
maximum
investment
of 10%
for issuer
and total
exposure
cap of 25%.
Sectoral
limit at 25%.
Group limit
at 20%.

Minimum
three years
residual
maturity

Minimum
tenure of one
year for bonds;
investment in
unrated papers
not allowed
except for
infrastructure
(capped at 10%)
and investment
in unlisted
securities
capped at 10%

Our study on investments made by major institutional investors

suggests the limits available for investment in corporate
bonds are not fully utilised. The reasons are not far to seek:
limited issuers and available securities satisfying the criteria,
negligible spreads between G-secs, state development loans
(SDLs) and corporate bonds, and limited liquidity in secondary
markets, to name some. Also the limits for corporate bond
investments are for fresh investments and keep changing.
As Table 1 shows, there are limits on fresh investments by
pension funds and Insurance companies.
In case of mutual funds, there is no limit on exposure to
corporate bonds. However, there are certain limits on exposure
to sector, group and company. Also, other investors who may
not have limits may be compelled to invest in top-rated issuers
in such market scenarios as liquidity in secondary markets
will also be towards top-rated long tenure papers. This can be
discouraging for new and low-rated issuers as there is limited
demand, leading to higher cost of funding for them in debt
markets.
Banks, on their part, are led by cash reserve ratio (CRR) and
statutory liquidity ratio (SLR) requirements to invest primarily
in G-secs, which are far more liquid compared with corporate
bonds.
Even in case of foreign portfolio investors (FPIs), liquidity plays
an important role, pushing them towards G-secs. Low spreads
of corporate bonds over G-secs also have a hand here as does
the minimum tenure restriction of three years.
Table 2 Provides details of investments made by various market
participants in corporate bonds at the end of fiscal 2015.

Table 2: Institutional investments in corporate bonds in FY15

Corporate
bonds (Rs cr)

Total
investments
(Rs cr)

% investments
in corporate
bonds

EPFO

182,128

636,039

28.63%

Corporates*

137,708

1,032,299

13.34%

Banks

267,765

2,983,576

8.97%

FPI

181,781

2,320,539

7.83%

MFs

250,054

1,194,774

20.93%

Life insurers

420,349

2,344,228

17.93%

General insurers

78,951

139,887

56.44%

Total

1,518,736

10,651,342

14.26%

*Based on FY13/14/15

Hence, there is a need to review investment norms for regulated

entities in order to facilitate their active participation in
corporate debt markets. The restrictive regulations need to be
modified. This may be difficult to implement at one go, but can
be carried out in phases over a few years.
CRISIL recommends that the following measures be considered:

RBI
1. Policies that can encourage lending by banks through
bonds instead of loans: Significant portion of bond portfolio
is allocated to sovereign securities due to SLR/CRR
requirements and many banks sometimes prefer to invest
far more than the prescribed floor. Steps that could help
channel such surplus to bond markets can be identified.
2. Reducing the SLR requirements and encouraging banks to
invest in corporate debt

35

3. Removing the valuation arbitrage between loans and bonds

due to which banks prefer loans over bonds
4. Following the global financial crisis, there was large-scale
use of non-sovereign papers as collateral by central banks
for providing liquidity. A similar enabling arrangement in
India, subject of course to appropriate haircuts and other
safeguards, could be examined. This will enhance demand
for good quality corporate paper.

EPFO, PFRDA, IRDA

1. Instead of capping investments in corporate bonds, a floor
should be introduced for investment in corporate bonds to
encourage investors
2. Restrictions such as dual-rated papers and a minimum AA
rating can be liberalised to include lower-rated issuers (up to
investment grade) with single ratings. Given the significant
deployable funds with financially sound insurance
companies and other long-term investors, it is necessary to
set up a taskforce that can find the ways for such monies
to flow into lower-rated papers backed by prudential risk
management.
3. Minimum tenure requirement of three years can be removed
as this reduces liquidity in shorter tenures, which are the
preferred maturity for asset management companies (AMCs),
and leads to greater preference for G-secs. Also, it may limit
access of new issuers to debt markets as investors may not
risk investing in new issuers for long maturity.

SEBI
1. FPI limits can be enhanced and restrictions on minimum
maturity removed.

36

Generic measures SEBI/ Ministry of Finance

1. Restricting the proportion of borrowings by large corporates
from banks and making such corporates use the market
mechanism (such as corporate bonds, commercial papers
and other instruments)
2. While the Union Budget for fiscal 2017 addresses taxation
structure in securitised debt -- from distribution tax at
special purpose vehicle level to taxation in the hands of
investors -- mutual funds havent started investing for want
of clarity in pending tax issues related to pass-through
certificates
3. Inclusion of India in major global emerging market debt
indices, which will lead to significant inflows from FPIs
4. Standardised stamp duties on corporate bonds across states
5. Other generic measures such as tax benefits, credit
enhancements, guarantee by government or capital
protection through CDS, minimum mandatory exposure to
infrastructure sector can be taken to incentivise investment
in securities of infrastructure sector such as bonds or units
of real estate investment trusts (REITs) and infrastructure
investment trusts (InvITs).
6. Additional measures such as re-issuance of the same
security and transparency of information can boost liquidity
of corporate bonds and help shift preference
A robust and effective bankruptcy regime is already here: The
Parliament has already made the Insolvency and Bankruptcy
Code into law. While this is perhaps the biggest financial reform
in recent times, its success will be a function of how relentless
and effective the implementation would be. That, in turn, will be
a function of mindset change among various stakeholders.

Overcoming market shallowness

37

The corporate bond market has a large footprint in developed

countries. However, in India, it remains small despite a string
of measures taken over many years now. In terms of size, too,
the market for corporate bonds is way shallower than that for
government securities.
A look at the total outstanding corporate and sovereign debt in
the country shows that sovereign papers comprise 72% of the
pie (Table 1).
Table 1: Sovereign skew continues

Penetration (outstanding debt/GDP)

as on Dec 31, 2015

Ratio (bonds/
G-secs)

G-secs

Corp bonds

US

81%

123%

1.5

China

39%

20%

0.5

Japan

199%

16%

0.1

South Korea

53%

77%

1.5

Hong Kong

39%

29%

0.8

Singapore

46%

32%

0.7

Amount outstanding as on
Dec 31, 2015 (Rs cr)

% of total

Sovereign

63,96,089

72%

Malaysia

53%

44%

0.8

i) G-secs

45,19,205

51%

India

40%

17%

0.4

ii) SDL

14,51,236

16%

iii) T-bills

4,25,648

5%

Corporate

24,26,294

28%

i) Corporate
bonds

19,11,226

22%

ii) CP

3,08,509

4%

iii) CD

2,06,559

2%

Total

88,22,383

100%

Source: RBI, SEBI

Overall penetration of the debt market in India, as measured

by the amount outstanding to GDP, increased from 10.31% to
~17% between 2010 and 2015 . However, the growth pales in
comparison with top developed and emerging Asian markets
(Table 2).

38

Table 2: The global penetration picture

Source: SIFMA, ADB Online, CRISIL Research

Between 2005 and 2014, the corporate bond markets in

emerging economies tripled in size to $6.9 trillion from $1.9
trillion (IOSCO working paper, September 2015). But even that
was a puny part of the global debt (including households,
corporate, government and financial), which stood at ~$199
trillion in 2014, according to a McKinsey & Co estimate.

How is the primary market doing?

In an encouraging turn, India saw a healthy growth in fresh
issuance of bonds in the last five years , at a 19% CAGR.
However, this was concentrated towards the top end, with AAA
and AA category papers accounting for almost 80% of the total,
mainly given the restrictive investment policies of key investors
such as pension funds and insurance companies (Tables 3 & 4).

Table 3: Swinging mop-ups

Number of
issuers

Amount
mobilised
(Rs cr)

Growth in
amount
mobilised

FY11

182

1,92,127

1%

FY12

164

2,51,437

31%

FY13

267

3,51,848

40%

FY14

245

2,70,946

-23%

FY15

344

4,32,692

60%

FY16

470

4,58,073*

6%

Source: SEBI
*Only details of private placement available

Table 4: Rating-wise decomposition

Rating
category

Amount (Rs cr)

FY16*-% of total

FY11

FY12

FY13

FY14

FY15

FY16*

AAA

1,32,075

1,89,447

2,26,311

1,89,396

2,80,348

1,85,840

54%

AA+

18,775

28,054

54,742

36,917

60,466

41,500

12%

AA

10,851

12,587

25,351

15,360

24,345

24,271

7%

AA-

13,856

6,237

16,946

9,404

26,707

24,286

7%

A+

8,178

2,167

3,735

5,880

12,637

9,620

3%

5,844

6,175

12,015

5,207

7,826

7,832

2%

A-

890

3,414

2,536

2,243

5,357

3,455

1%

1,658

3,356

10,637

6,539

15,007

47,095

14%

1,92,127

2,51,437

3,52,272

2,70,946

4,32,692

3,43,898

100%

BBB and
Below
Total

Source: SEBI, Prime Database, CRISIL Research

* Data up to December 2015

39

Among the sectors, banking, financial services and insurance

(BFSI) dominated the issuances (Table 5). In fiscal 2016, as of
the third quarter, private corporates and non-banking finance
companies (NBFCs) saw the sharpest increase, followed by
financial institutions and housing finance companies (HFCs).
The skew towards top-rated issuers remained, given higher
demand from the market. Also, favourable spreads between

bank base rate and yields on these papers prompted these

players to raise capital through bonds instead of bank loans.
The top 10 issuers accounted for 32% of total issuances in fiscal
2016, led by the financial sector (Table 6). Indeed, the list had
only one issuer from manufacturing; financial institutions, HFCs
or banks brought up the rest.

Table 5: Sector-wise issuer decomposition

Amount (Rs cr)
FY11

FY12

FY13

FY14

FY15

FY16(Q3)

FY16*-% of
total

Financial institutions

72,112

113,520

109,425

82,434

127,892

60,404

18%

Housing finance companies

29,801

36,367

57,850

55,106

73,938

56,502

16%

NBFCs

12,877

26,697

45,777

38,774

64,957

78,466

23%

Banks

19,481

14,974

24,495

14,388

47,881

25,484

7%

Sub-total
Public sector undertakings

64%
12,850

27,176

39,851

31,784

31,219

22,497

7%

State-level undertakings

1,981

4,184

8,584

3,686

5,207

502

0%

State financial institutions

1,425

1,575

5,394

1,482

1,733

0%

Sub-total
Private non-financial sector

41,599

26,946

60,473

43,291

79,864

1,00,043

29%

Total

192,127

251,437

351,848

270,946

432,692

3,43,898

100%

Source: SEBI, Prime Database, CRISIL Research

* Data up to December 2015

40

7%

Table 6: Top 10 issuers in FY16

Company

Table 7: Secondary market liquidity comparison

Sector

Amount
(Rs cr)

Public FI

21,112

LIC Housing Finance

HFC

17,343

HDFC

HFC

15,376

REC

Public FI

12,931

Nabard

Public FI

8,705

Private non financial

sector

7,500

PGC

Public FI

IDFC
Indiabulls Housing
Finance

PFC

Reliance Jio Infocomm

Kotak Mahindra Prime

Country

Trading ratio
G-secs

Corporate bonds

US

3.3%

0.9%

China

0.7%

0.3%

Japan

2.0%

0.1%

South Korea

0.9%

0.2%

Hong Kong

1.3%

0.2%

Singapore

0.4%

NA

7,326

Malaysia

0.4%

0.1%

Bank

7,042

India

0.8%

0.2%

HFC

6,922

Trading ratio is average daily trading to amount outstanding; Data up to December 2015
Source: SIFMA, ADB Online, CRISIL Research

NBFC

5,668

Similar to the primary market, liquidity in the secondary market

for corporate bonds has improved as average daily trading grew
11.5% annually over the past five years. However, the trading
remains concentrated towards top-rated securities, with AAAand AA-rated issuers accounting for almost 96% of the trades,
while low-rated issuers are mostly in the held to maturity
(HTM)category. Here, too, the BFSI sector dominates play (Table
8, 9 & 10).

Source: Prime Database, CRISIL Research

Data up to December 2015

Is the secondary market any better?

The secondary bond market, too, remains quite illiquid
compared with global peers (Table 7). The concerns are
heightened in case of corporate bonds compared with G-secs.

Table 8: Average daily trading (Rs cr)

FY11

2,437

FY12

2,476

FY13

3,047

FY14

4,025

FY15

4,584

FY16*

4,207

* Data up to December 2015;

Source: FIMMDA, NSE, BSE, CRISIL Research

41

Table 9: Rating-wise trading in the secondary market

Rating
category

% of total trading
FY11

FY12

FY13

FY14

FY15

FY16*

AAA

74.6%

84.1%

78.2%

80.5%

80.4%

78.0%

AA+

11.7%

6.2%

10.5%

8.0%

7.3%

8.1%

AA

4.4%

4.3%

5.9%

4.7%

4.5%

6.3%

AA-

7.0%

2.8%

2.5%

3.9%

3.7%

3.9%

A+ and
Below

2.4%

2.6%

2.9%

2.9%

4.0%

3.8%

* Data up to December 2015;

Source: FIMMDA, NSE, BSE, CRISIL Research

A review of investment guidelines from major regulators for

pension funds and insurance companies, explains the skew
towards top-rated issuers. First, regulations prohibit key
investors from picking up securities rated below AA, a segment
where the BFSI sector dominates. Second, the market prefers
top-rated PSU issuers given a perceived lower risk because of
government backing. Third, high SLR/CRR requirements limit
banks demand for corporate debt. Fourth, arbitrage provided
by bank loans, which are not marked to market, unlike bonds,
feeds the preference for loans instead of bonds, too. Fifth,
major players follow an HTM style of investing, which is also a
reason for illiquidity in the secondary market.

So whats the solution?

Table 10: Sector-wise trading in the secondary market
Sector

% of total trading
FY11

FY12

FY14

FY15

FY16*

FIs

43.20% 50.90% 47.69%

HFCs

14.30% 19.06% 16.50% 17.82% 18.09% 20.31%

PSUs

9.80%

8.67%

8.78%

49.14% 42.45% 38.43%

11.70% 15.30% 10.66%

Private non 11.20% 10.07% 15.39%

financial
sector

9.83%

11.55% 14.91%

NBFCs

15.50%

7.92%

6.28%

7.13%

8.02%

12.04%

Banks

5.20%

2.69%

3.54%

2.59%

3.60%

3.01%

State level
undertakings

0.40%

0.55%

1.74%

1.77%

0.91%

0.63%

State
financial
institutions

0.50%

0.14%

0.07%

0.03%

0.08%

0.01%

* Data up to December 2015;

Source: FIMMDA, NSE, BSE, CRISIL Research

42

FY13

A developed bond market in India remains a distant dream,

not because evangelists are few and far between. Indeed,
development of the market has been an oft-repeated theme
across research papers and conferences for years.
We believe the time to identify and pursue actionable steps to
increase the depth of Indias corporate bond market depth is
nigh. We have identified a few of these, and it will be pertinent
to note that all of them have facilitated growth in the corporate
bond market of developed nations, which underscores their
significance.

Institutional investment through broad-based retail

participation
Investor awareness
Development of new products
Taxation
Increased share of organised sector employment
Increased contribution of foreign investors

 Transition from bank loans to bonds

Impetus to securitisation market

Removing loan-bond arbitrage
Additional measures such as putting a cap on loans that
can be raised by large borrowers
Bonds by public sector banks great demand but limited
investors
Revamp of credit enhancement mechanism
Boost to innovative structure (partial guarantee,
securitisation of annuity roads, receivables by
municipal corporations)
Revamp of regulatory policies for investments
Quick and effective implementation of the Insolvency and
Bankruptcy Code, 2016, to give comfort -- and showcase its
efficacy -- to bond market investors

Identification and modification of regulations which are

roadblocks in development of bond markets.

43

44

Adopting global best practices

45

A sizeable debt outstanding notwithstanding, the corporate

bond market is in a nascent state compared with not just
developed countries, but also key emerging economies such as
South Korea and Malaysia. South Korea, which has a GDP very
similar to India, has a highly developed corporate bond market,
with a penetration level of around 77%. Malaysia, though
significantly smaller in terms of GDP, ranks the second-highest
among Asian countries in terms of penetration.
Corporate bond market penetration
(as % of GDP)
FY11

FY15

India

10.07%

16.74%

South Korea

58.62%

76.90%

Malaysia

37.01%

43.85%

Initiatives under CMP included:

Market institutions

Linking the money settlement system with the capital

market trading and clearing systems

Bond market

Encouraging international financial institutions and

multinational corporations to issue Ringgit bonds

Allowing domestic bonds to be rated by international bond

rating agencies

Establishing a centralised platform for clearing and

settlement of listed and unlisted bonds

Islamic capital market

India can take a cue from reforms undertaken by these

economies and implement the measures found suitable to the
local market.

Promoting a wider range of Islamic collective investment

Malaysia

Enhancing awareness of Malaysias Islamic capital market

The capital market master plan

Malaysian government prepared a plan called The Capital
Market Master Plan (CMP) in 2001, to provide a comprehensive
roadmap for the countrys capital markets over the next 10
years. Representatives of the Securities Commission and local
and foreign capital market professionals helped formulate the
CMP.

schemes

Increasing the pool of Islamic capital market expertise

through more training and education

at the domestic and international levels

Investment management

Introducing a uniform regulatory framework streamlining

the licensing rules for the investment management industry

Technology and e-commerce

Facilitating end-to-end, straight-through processing in

Malaysian capital markets, with linkages to international

systems

46

The government also took measures such as:

In the wholesale segment of the fund management industry,

Establishment of the national financial guarantee

institution

On May 2009, the Malaysian government announced the

establishment of the national financial guarantee institution,
Danajamin Nasional Berhad (Danajamin). Danajamin will
provide financial guarantee insurance for issuances of private
debt and Islamic securities. The insurance will be available for
securities issued by investment grade companies, which are
defined as rated BBB or higher by a Malaysian rating agency.
Danajamin will have the capacity to insure up to MYR15 billion
of investment grade private debt and Islamic securities.

Measures to liberalise the capital market

On June 2009, Prime Minister Datuk Seri Najib Razak
announced measures that would further liberalise foreign
investment and open up Malaysias domestic capital
markets. The measures were part of the countrys shift to
a new economic model, following liberalisation in services
sub-sectors and steps to enhance the financial sector. The
important measures included:

100% ownership allowed for qualified and leading fund

management companies;
Foreign shareholding limits for the unit trust management
companies/ stock broking companies raised to 70% from
49%;
Foreign Investment Committee guidelines on acquisition
of interests, mergers and takeovers repealed; no equity
conditions to be imposed on sectors deemed non-strategic;
and,
The 30% bumiputra requirement for an initial public
offering done away with.

A new investment institution, Ekuiti Nasional Berhad (Ekuinas)

will also be established. Ekuinas will serve as a private equity
fund with an initial capital of Malaysian ringgit 500 million,
which will be subsequently enlarged to 10 billion ringgit ,
focusing on investments in sectors with high growth potential
and joint investments with private sector funds.
The above measures led to significant growth, with the
outstanding of Malaysian corporate bonds quadrupling in 15
years, as detailed in table below.

Malaysia

Government
($ billion)

Corporate
($ billion)

Total ($ billion)

GDP ($ billion)

Government
(% of GDP)

Corporate
(% of GDP)

Total
(% of GDP)

Dec 2000

35.68

33.02

68.7

93.79

38.04

35.21

73.25

Mar 2009

88.12

71.87

159.99

206.46

42.68

34.81

77.49

Mar 2015

165.26

124.56

289.82

301.8

54.76

41.27

96.03

Source: ADB Online, CRISIL Research

47

Takeaway for India: A master plan highlighting the roadmap for

market development can be drawn up, and milestones set by
the government to track progress. Measures such as providing
partial guarantee/ insurance have been under evaluation for
some time now. Setting up of a dedicated institution to provide
guarantees/ credit enhancements can be looked at. Improving
the infrastructure for trading, reporting and settlement is an
imperative too.

South Korea
The bond market in the Republic of Korea is one of the
largest markets in Asia. Various reforms have led to its rapid
development, including gradual market liberalisation. All fixedincome instruments are available to foreign investors. These
include:

Financial supervisory regulation rationalisation plan

market participants, and address the concerns of foreign

financial institutions.

Financial market stabilisation plan

The Korea Securities and Futures Exchange Consolidation Bill
was passed in January 2004. The Bill is the legal framework for
merger of the Korea Stock Exchange, Korea Futures Exchange,
and the KOSDAQ Stock Market to establish an integrated and
demutualised exchange. In January 2005, the Korea Exchange
(KRX), was incorporated, in a consolidation of the three spot
and futures exchanges. KRX was part of the Financial Market
Stabilisation Plan under Koreas Economic Policy Direction for
2004. Other policy reforms in the plan include outlining the
legal procedures and responsibilities for electronic financial
transactions.

Securities class action suit law

The Financial Supervisory Commission (FSC) announced in

December 2003 a set of initiatives to streamline and rationalise
the regulatory framework of the Financial Supervisory Service
(FSS). The plan contained 123 initiatives that emphasised
deregulation of businesses, increasing transparency in capital
markets, bolstering self-regulation, and deregulation of foreign
financial service providers. Specifically, the initiatives aim to:

The Securities Class Action Suit Law became effective on

January 1, 2005. Under the Law, class action suits can be
initiated for unfair trading involving use of inside information
and market manipulation. Companies can also be open to class
action for deliberate falsification of financial statements and
disclosure violations.

raise the ceiling on privately placed bond holdings for

Foreign exchange liberalisation plan

On May 19, 2006, the government announced it was accelerating

foreign exchange liberalisation to attract investment capital for
new infrastructure, and to promote foreign exchange market
development. The foreign exchange liberalisation plan is now

48

enhance regulatory equity between domestic and foreign

investment of trust funds, and repeal the ceiling on privately

placed bond holdings for mutual funds;
expand the range of firms eligible to issue commercial
papers and engage in asset securitisation as originators;
enhance the effectiveness of short-sale regulations by
incorporating these into the Securities and Exchange Act;
and

expected to be completed in 2009 instead of 2011. The first

phase of the two-phase programme is scheduled for 2006-2007.
The plan will (i) internationalise the won; (ii) liberalise foreign
exchange transactions, including Korean overseas investments;
and (iii) accelerate development of the foreign exchange
market.

Consolidation of securities and capital market laws

The Financial Investment Services and Capital Markets Act
became effective on February 4, 2009. Major changes in the
legislation include:

Financial services deregulation Removal of restrictions

Broadening the scope of financial investment products

the meaning and scope of financial investments and

products offered reversed from the earlier system of
enumerating what is allowed to one defining what is illegal.
Deregulation of indirect investment removal of
restrictions that recognise only trust investments (in the
form of beneficiary certificates), corporate-type investment
companies (mutual funds) and private equity funds as
indirect investment vehicles. Thus, other entities recognised
under the Commercial Code can be included as indirect
investment vehicles.

The above steps led to significant growth of debt markets in

Korea, as detailed in table below.

strictly separating securities, futures, asset management,

trust services and other financial services businesses
(excluding banking) to integrate their financial services
business.

Korea

Government
($ billion)

Corporate
($ billion)

Total
($ billion)

GDP
($ billion)

Government
(% of GDP)

Corporate
(% of GDP)

Total
(% of GDP)

FY01

122.74

232.96

355.7

486.22

25.24

47.91

73.15

FY09

360.35

426.96

787.31

802.33

44.91

53.22

98.13

FY15

711.68

1000.69

1712.37

1352.5

52.62

73.99

126.61

Source: ADB Online, CRISIL Research

49

Takeaway for India: Liberalisation of investment policies by

key investors such as pension funds, insurance companies and
FPIs can be considered and focus sharpened on removing the
hurdles in the path of development of securitisation markets.

Additional global experiences

Weaning businesses away from loans
In the US, economies of scale and banking regulation may
have played an important role in growth of the corporate bond
market. Securities issuance is typically characterised by high
set-up costs, but low incremental costs, as the size of the
securities issue increases. As such, for the numerous large US
corporates, capital markets as a source of financing could be
much more compelling than the alternative of using depository
institutions. Additionally, banking regulations have kept the
securities business separate from commercial banking for most
of the past 70 years, and until the 1980s restricted the banking
system from being as concentrated as other in countries,
including by limiting geographical expansion. Both of these
factors have fostered competition, limited the dominance of
the banking sector and contributed to corporate bond market
growth.
Takeaway for India: The following changes can be adopted
1. Removing differential treatment of loans and bonds in
terms of valuations Loans are not marked to market,
whereas bonds are. Such difference leads to preference of
banks for loans as bad investments can be hidden, unlike in
bonds
2. Reducing the CRR/SLR requirements This will free up
capital for banks to invest in corporate bonds
3. Restricting loans to top-rated issuers This can push toprated corporate issuers to enter the bond market

50

Tax incentives
Favourable tax treatment is one method of incentivising
populations to place their wealth with institutional investors.
For instance, the USs introduction of pre-tax, definedcontribution 401(k) retirement plans in 1978 propelled growth in
the mutual fund industry and, consequently, its capital markets.
Countries can also mandate that populations place their
wealth with institutional investors, as Chile did in the 1980s;
this has been credited with being instrumental to the countrys
corporate bond market development.
Hong Kong, Singapore and the United Arab Emirates do not have
capital gains or interest income withholding tax. Indonesia is
another example of an emerging market that is considering tax
breaks for investors in domestic corporate bonds.
In the Indian context, taxation is a crucial influencer of investor
decision. Currently, debt products are less tax-efficient than
equity products. And within debt products, mutual funds and
insurance plans are relatively more tax-efficient than direct
investments. Tax incentives have, in the past, helped channel
savings to financial assets such as insurance, retirement
products, equity-linked savings schemes and infrastructure
bonds. A tax sop also has a positive psychological impact
as investors recognise it as a de facto product from the
government. Initiatives such as Rajiv Gandhi Equity Savings
Scheme can be replicated for corporate debt products, too.
Increase in share of organised sector employment will help
bring in a larger section of working population under the ambit
of retirement products such as Employees Provident Fund
and the National Pension System. Additionally, mandatory
contribution to pension can be an option worth considering.

Transparency
The Asia Bond Monitor provides an example of efforts by ASEAN
backed by the Asian Development Bank to improve the
capture and availability of information on their bond markets.
The quarterly publication provides a thorough review of the
recent developments in east Asian LCY bond markets along with
an examination of the outlook, risks and discussion of policy
options. It has greatly improved understanding of the general
ASEAN bond markets and supports investors in their own
evaluation of the markets. The US also has a trade reporting
system, TRACE, where all secondary markets trades are
reported within 15 minutes of trade execution.
Takeaway for India: The country needs to update its
infrastructure to provide better trade settlement and reporting
platforms. Availability of primary and secondary market
transactions can attract a lot of new investors who can conduct
research and take informed decisions on investments. Being a
part of initiatives such as ASEAN can also help in standardising
the information and procedures and help in flows from member
nations.

51

52

Corporate bonds

53

Issuances grow over five-fold in a decade, placements dominate

Market decomposition by issuer, issuance and size

Rs cr

Rs 000 cr
500

4.50%

1,800

2,000

450

4.00%

1,600

1,800

400

3.50%

1,400

1,600

3.00%

1,200

350
300

2.50%

250

2.00%

200

1.50%

150
100

1.00%

50

0.50%

0.00%

1,400
1,200

1,000

1,000

800

800

600

600

400

400

200

200
0

0
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
Average issue size

Amount issued through private placement (Rs 000 cr)

Amount issued through public placement* (Rs 000 cr)

Number of issuers (RHS)

Total amount issued as a % of GDP (RHS)

Number of issuances (RHS)

*Data for public placements of corporate bonds available from FY09 onwards
Source: RBI, SEBI, Prime Database

Private placement remains the most-preferred route to raise

monies due to ease of issuance, cost efficiency and institutional
demand in private placements. The share of public placements
in total issuance declined 11 percentage points or by Rs
32,670 crore to 2% in fiscal 2015.

54

Source: Prime Database

Primary issuance picked up after slowing down in fiscal 2014.

Total issuance increased 41% on hopes of economic revival and
clarity on the treatment of debenture-redemption reserve for
non-banking financial companies (NBFCs). Net investments by
foreign portfolio investors (FPIs) increased from a negative Rs
28,000 crore in fiscal 2014 to a positive Rs 166,000 crore.

Bulk of the issuance continues to be from the BFSI sector

Rs 000 cr

The growing shift to capital market borrowings

4.50

350

4.12

4.00
3.50

300

3.00
250

2.50

2.14

2.00

200

1.50

150

0.50
0.00

50

0.28
FY06

0.50

FY07

0.72

0.61

FY08

FY09
Industry

FY06

FY07

FY08

Industry

FY09
BFSI

FY10

FY11

FY12

FY13

FY14

FY15

Services, excluding BFSI

1.04

1.01

1.00
100

1.46

1.32

FY10

FY11

FY12

FY13

FY 14 FY 15E

Services

*Ratio of bond issuances to incremental gross bank credit deployment during the year,
excluding bond issuances by banks
Source: RBI, Prime Database, CRISIL Research

Source: Prime Database, CRISIL Research

The services sector extended its domination of issuance, led by

the banking, financial services and insurance (BFSI) segment,
while other sectors continued to rely less. Issuance by services
excluding BFSI almost tripled over the previous year. This
can be attributed to more floats from the housing, real estate
and infrastructure sectors, which have picked up due to the
governments focus on infrastructure build-out. Additionally,
information technology and telecom sectors also increased
their borrowings.

The ratio of bond issuance to bank credit increased for both the
industrial and services sectors, due to higher demand from toprated corporates and lower cost in the bond market. The ratio
was 4.12 in Fiscal 2015 for the services sector, implying almost
80% of borrowing was from the bond market.

55

Issuances by private non-financials, HFCs and NBFCs take off

FY06

FY15
31%
9%
10%

Financial institutions
and others
Housing finance
companies

Private corporate sector

NBFCs

7%
13%

1%
1%

17%
18%
15%

Public sector undertakings

Banks

35%

30%

7%
11%

State financial institutions

State-level undertakings

2%

Source: Prime Database, CRISIL Research

In the decade to fiscal 2015, the share of issuance by housingfinance companies (HFCs) and non-banking finance companies
(NBFCs) increased from 16% to 32%, as funding preference
shifted away from banks. Borrowing from the money market led
to a diversification in resource profile, reduced cost of funds
(due to higher liquidity, and acceptability by, and demand from,
investors). Issuance by banks declined on lower credit growth,
surplus funds and healthy foreign currency non-resident
(FCNR) deposits. Issuance by state firms was negligible as

56

debt-burdened power distribution companies stayed away.

Issuance by private non-financials, comprising manufacturing,
real estate, power, steel and other corporates, increased
significantly on higher demand, acceptability of higher-rated
manufacturing sector issuers, and the benefit of borrowing from
the bond market at a lower cost compared with bank loans,
which carried higher base rates. The top five issuers in this
category were Reliance Jio, IOT Utkal, JSW Steel, Tata Motors,
and Adani Power & Special Economic Zone.

Financial institutions top the toppers

Top 10 account for chunk of issuances

SBI

Rs 000 cr
250
200

70%

ICICI Bk

60%

EXIM

50%
150

40%

100

30%
20%

50
0

10%
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

0%

PGC
IDFC
LIC Housing
NABARD
REC
HDFC
PFC
0.0

Total issuance by top 10 issuers

% of total issuance (RHS)

Rs cr
50,000

100,000

150,000

200,000

Aggregate issuance in the last 10 years

Source: Prime Database

Source: Prime Database

Total issuance from top 10 issuers continued to grow in volume,

but in percentage terms, it has remained steady between 40%
and 60% in the past few years. The same can be attributed to
high demand for these issuers as there is limited supply from
top rated issuers.

Financial institutions continue to form a majority of the top10 issuers list. ICICI Bank replaced Indian Railway Finance
Corporation, which had negligible issuance compared with
fiscal 2014.

57

Half of the issuances are big-ticket

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

FY06

FY07

FY08

Small (Rs 10 cr & below)

FY09

FY10

FY11

Medium (Rs 10-50 cr)

Source: Prime Database, CRISIL Research

The share of large issuances grew to 50% of total, a rise of 10

percentage points, grabbing the share from small issuances due
to few large issuances from corporates which took advantage of
low yields in bond markets.

58

FY12

FY13

FY14

FY15

Large (Rs 50 cr & above)

AA rating category continues to dominate by number, and AAA category by volume

Number of issuances

Amount of issuances

100%

100%

90%

90%

80%

80%

70%

70%

60%

60%

50%

50%

40%

40%

30%

30%

20%

20%

10%

10%

0%

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

Source: Prime Database, CRISIL Research

AAA

AA category

AA rated entities remain the largest category in terms of

issuance by number, but their share in total fell from 62% to
48%. Issuance grew 8 percentage points in the A+ and below
category, and by 6 percentage points in AAA category. The
number of A rated issuers increased 35%.

0%

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

A+ and below

In terms of volume, the trend remains consistent across years,

with AAA rated entities accounting for 65-70% of the issuance.
Even though there is a sharp rise in the number of issuances by
the A+ and below category, growth is only 2 percentage points
because of low ticket sizes.

59

AA issuances log all-round growth

Shorter papers continue to find favour

% of issuances

Number of securities

FY15

FY14

Others

FY13

Banks
NBFCs

FY12

Rs 000 cr
0

10

20

30

40

50

60

5,000

100%

4,500

90%

4,000

80%

3,500

70%

3,000

60%

2,500

50%

2,000

40%

1,500

30%

1,000

20%

500

10%

Source: Prime Database, CRISIL Research

Issuance by banks and others increased considerably, showing

rising acceptance of new papers from these segments.
Higher number of issuances from HFCs, the services sector,
manufacturing companies, and financial institutions drove
growth.

0%
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

Over 5 years (%) (RHS)

Up to 5 years (%) (RHS)

Up to 5 years

Over 5 years
Source: Prime Database

Growth in longer issuance was almost flat, but issuance of

small- to medium-term maturity papers grew sharply, due to
demand for fixed-maturity plan (FMP) rollovers, higher issuance
from NBFCs (which is concentrated in this maturity segment)
and greater demand from FPIs. Rollovers were led by changes
in taxation , which make FMPs below three years unfavourable
for investment. FPI demand in maturities beyond three years
was due to change in regulation which prohibits investment in
papers with maturity of less than three years.

60

Bond spreads narrow further

FPI plonk it in

4.00%

Rs 000 cr
200

3.50%
3.00%

150

2.50%
2.00%

100

1.50%
1.00%

50

0.50%

0.00%

FY06 FY07 FY08 FY09 FY10

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

AAA

AA+

AA

AA-

FY11 FY12 FY13

FY15
FY14

(50)
FPI investment: debt (Rs 000 cr)

Spread over 10-year benchmark G-sec yield as on March-end

Source: CRISIL Research

Spreads between yields on 10 year corporate bonds and G-secs

continued to narrow, due to higher demand for corporate bonds
from institutional investors. Reasons like fall in crude oil prices,
stable exchange rates, revision of rating outlook for India to
stable, and easy liquidity conditions led to fall in yields and
spreads

Source: SEBI

FPI investments increased manifold, suggesting positive

sentiment due to a stable government, lower inflation, steady
growth rate and higher investment limit.

61

Trading in secondary market rising

Longer-tenures trade more in bullish markets

Rs 000 cr

Rs cr

10.0%

600

5,000
4,500

9.0%

500

8.0%

4,000

7.0%

400

3,500
3,000

6.0%
5.0%

300

2,500

4.0%

200

2,000
1,500

3.0%
2.0%

100

1.0%

1,000
0

500
0
FY09

FY10

FY11

FY12

FY13

FY14

Average daily trading

Source: FIMMDA, CRISIL Research

Secondary market trading continued to grow, indicating

increasing depth and liquidity. Higher FPI activity also
contributed marginally to this trend.

62

FY15

FY09

FY10

Up to 3 years

FY11

FY12

Above 3 years

FY13

FY14

FY15

0.0%

G-sec yield* (RHS)

Total annual trading

*10-year benchmark G-sec yield as on March-end
Maturity refers to residual maturity of the instruments
Source: RBI, FIMMDA, CRISIL Research

Longer maturity continues to trade more, due to the large

number of trades from banks selling to pension funds and
insurers. It was also due to FPI demand for tenures greater than
three years.

Certificates of deposit
and commercial papers

63

CP issuances up five-fold in five fiscals

A hat-trick of declines in CD issuances

Commercial paper

Certificates of deposit

Amount (Rs cr)

Interest rate range (%)

FY06

31,686

5.25-9.25

1.09-7

FY07

NA

6.25-13.35

71,684

4.10-8.94

FY08

NA

2.25-16

FY07

114,886

4.35-11.90

FY09

NA

5.25-17.75

FY08

41,426

5.50-11.50

FY10

NA

2.83-12.50

FY09

134,712

5.25-21

FY11

225,453

3.85-18

FY10

428,438

3.09-11.50

FY12

492,420

6.39-15.25

FY11

851,834

4.15-10.72

FY13

765,353

7.37-15.25

FY12

944,996

7.30-11.90

FY14

728,146

7.36-14.31

FY13

865,156

7.85-12

FY15

1,150,061

7.36-14.92

FY14

796,468

7.50-11.95

FY15

772,847

7.55-10.25

Amount (Rs cr)

Interest rate range (%)

FY04

4,697

3.57-7.40

FY05

12,825

FY06

Source: RBI

Issuance of certificates of deposit (CD) marginally extended

the decline due to low credit growth of banks. The easing of
liquidity conditions, coupled with a reduction in the policy rate
and relatively lower issuances of CDs by banks on the back of
subdued credit off-take, led to a decrease in interest rate on
CDs.

64

NA: Not available

Source: RBI

Issuance volume of commercial paper (CP) increased by more

than 58%. reflecting substitution of short-term bank credit by
market based funding on account of the cost effectiveness of
CPs for raising funds. For the first time, CP issuances were more
than CDs by 49%, due to lower demand from banks and wider
spreads. NBFC issuers tapped the market due to wider spreads
between bank base rates and debt market yields and a higher
share in the lending to small and medium enterprises.

Trading in CDs dropped for a third consecutive year

8,459

CDs of up to 91-day maturity dominates trading

Rs 000 cr

8,467
7,410
6,919
6,590

2,500

2,000

1,500

1,000

500

Rs cr
FY11* FY12 FY13 FY14

FY15

Average daily trading

*From August 2010
Source: FIMMDA

FY11*

FY13

FY12

Up to 91 days

(>91-182) days

FY14

FY15

(>182-365) days

More than 365 Days

In line with the issuance volume trend, average daily trading in

CDs extended its decline by 5%.

Total annual trading

*From August 2010
Maturity refers to residual maturity of the instruments
Source:FIMMDA

Secondary market trading in CDs declined 8%, with the

maximum hit taken by 182- to 365-day papers, where volume
dropped 52%. CDs with tenures to 91 days continued to be the
most liquid.

65

Trading in CP picks up

Shortest-tenure paper traded the most

Rs 000 cr

Rs cr
3,500

800

3,000

700
2,500

600
2,000

500

1,500

400

1,000

300

500

200

0
FY11*

FY12

FY13

FY14

FY15

100
Average daily trading
*From August 2010
Source: FIMMDA

Secondary market trading data show overall volume in CP

trading increasing 32%. The trend is similar to the issuance
trend for commercial paper.

0
FY11*

FY12

Up to 91 days

FY13

>91-182 days

FY14

FY15

>182-365 days

Total annual trading

*From August 2010
Maturity refers to residual maturity of the instruments
Source: FIMMDA

CPs with maturity up to 91 days remained the most liquid, with

almost 93% of the trades happening in them.

66

Government securities

67

Issuances grow along with share in GDP

Small and big issuances apace

Rs 000 cr

Rs 000 cr
700

8.0%

700

600

7.0%

600

100%
90%
80%

6.0%

500

5.0%

400

4.0%
300

3.0%

200

500

70%
60%

400

50%
300

40%

2.0%

100

1.0%

0.0%

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
Issuance as a % of GDP (RHS)

Source: RBI, CRISIL Research

20%

100
0

Issuance (Rs cr)

30%

200

10%
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

More than Rs 5,000 cr

Up to Rs 5,000 cr

% of issuances up to
Rs 5,000 cr (RHS)

Source: RBI, CRISIL Research

Issuance amount (absolute and as a percentage of GDP)

increased marginally over the previous year. The central
government borrowed Rs 5.92 lakh crore in fiscal 2015, lower
than the budgeted Rs 6 lakh crore. That compares with Rs 5.68
lakh crore borrowed in fiscal 2014.

68

0%

Larger issuances (greater than Rs 5,000 crore) increased

marginally compared with the previous year.

No issuance in the short tenures

Rs 000 cr
700
600
500
More than 30 years
400

(>20-30) years
(>10-20) years

300

(>05-10) years
200

(>03-05) years

Upto 3 years

100
0
FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
Source: RBI, CRISIL Research

There was no issuance in the shorter maturity (0-5 years) as RBI

elongated the maturity profile of government debt, through long
tenure issuances, thereby mitigating rollover risks. Borrowing
increased in the 10-20-year segment while overall borrowing
increased slightly.

23

69

Secondary market trading continues to be healthy

Longer-tenures trade more amid falling yields

Rs 000 cr

Rs 000 cr
45

10,000

10%

40

9,000

9%

8,000

8%

7,000

7%

6,000

6%

15

5,000

5%

10

4,000

4%

3,000

3%

2,000

2%

1,000

1%

35
30
25
20

0
FY09

FY10

FY11

FY12

FY13

FY14

FY15

Average daily trading

Source: CCIL

Average daily trading continued to increase in fiscal 2015, rising

18%. In the previous four years, it increased nearly 3 times, due
to higher FPI limit and lower statutory liquidity ratio for banks,
which are the majority G-sec traders.

FY09

FY10

More than 10 years

FY11

FY12

>5 to 10 years

FY13

FY14

>3 to 5 years

FY15

0%

Up to 3 years

G-sec yield* (RHS)

Total annual trading
*10-year benchmark G-sec yield as on March-end
Maturity refers to residual maturity of the instruments
Source: RBI, CCIL

Trading in medium-term papers (3-5 years) decreased

considerably because of the lack of fresh issuance and lower
FPI interest. Investors preferred longer durations due to the
expectation of an economic revival and falling interest rates.
Majority of trades (about 65%) were by banks (domestic and
foreign) and primary dealers (about 20%), which are mainly
sellers of new securities, followed by mutual funds and insurers.
Trading was higher in the longer tenures, as the majority of
issuance was in that segment.

70

State development loans

71

Of late, a sharp rise in state development loan issuances

Rs 000 cr

300

250

250

200

200
150

150
100

100
50

50

FY06

FY07

FY08

Issued amount

FY09

FY10

FY11

FY12

FY14

Number of issuances (RHS)

Source: RBI (FY10-15), CRISIL Research (FY06-09)

Issuance of state development loans continued to increase, as

states hit the bond market multiple times to fund development.

72

FY13

FY15

West Bengal, Maharashtra, Andhra most prolific borrowers

Classification of states based on amount and frequency of issuances
Number of years in which issuances were made in the last 10 years
<5

Up to Rs 5,000 cr

Odisha

5 to 8

Puducherry

10

Tripura

Manipur

Sikkim

Meghalaya

Arunachal Pradesh

Mizoram
Goa

Chhattisgarh
Above Rs 5,000 cr and up to
Rs 25,000 cr
Aggregate
amount
issued in last
10 years

Himachal Pradesh
Jammu & Kashmir

Assam

Jharkhand
Nagaland

Telangana

Uttarakhand

Above Rs 25,000 cr and

up to Rs 50,000 cr

Bihar

Madhya Pradesh
Kerala

Above Rs 50,000 cr and

up to Rs 80,000 cr

Haryana

Karnataka

Punjab
Rajasthan
Andhra Pradesh
Maharashtra

Above Rs 80,000 cr

Gujarat

Tamil Nadu
Uttar Pradesh
West Bengal

73

Slight increase in larger issuances

10-year maturity remains the preferred tenure

100%

100%

90%

90%

80%

80%

70%

70%

60%

60%

50%

50%

40%

40%

30%

30%

20%

20%

10%

10%

0%

FY06

FY07

Above Rs 1000 cr

FY08

FY09

FY10

FY11

FY12

More than Rs 500 cr up to Rs 1000 cr

FY13

FY14

FY15

Up to Rs 500 cr

Source: RBI (FY10-14), CRISIL Research (FY05-09)

Large issuances (Rs 500 crore and more), which remain the most
preferred size, increased by 22%, while smaller ones reduced by
12%.

74

0%
FY06

FY07

FY08

More than 10 years

FY09

FY10

FY11

FY12

FY13

More than 5 years up to 10 years

FY14

FY15

Up to 5 years

Source: RBI (FY10-15), CRISIL Research (FY06-09)

In SDLs, 5-10 years remained the preferred maturity, with

a majority of issuance in the 10-year bracket. However, in
fiscal 2015, there were quite a few instances of SDLs being
issued with tenures up to five years and a few special bonds
with tenures greater than 10 years. These bonds were special
because they were not eligible for statutory liquidity ratio
calculation and predate the UDAY bonds for the power sector

Fiscals 2012-15 saw a sharp rise in traded volume

Rs cr
900

Spread in bps

800

200

700
150

600
500

100

400
300

50

200
100
0

0
FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

Average daily trading

Spread of SDL over G-sec for the year (RHS)
Spread of AAA bond over G-sec for the year (RHS)
Source: CCIL (FY09-15), CRISIL Research (FY06-08)

Over the past three years, as traded volume and liquidity

increased in SDLs, their spreads over G-secs continued to
narrow. Despite this, there was higher demand because the

yields offered were higher than in G-secs and even AAA rated
corporate bonds

75

Trading mirrors issuance trends

Punjab
2,152
Uttar Pradesh
4,988

Rajasthan
3,141
Gujarat
6,361

West Bengal
7,944

Maharashtra
8,135
Andhra Pradesh
8,491

Karnataka
5,729

Kerala
4,211

Tamil Nadu
6,544

Source: CCIL, CRISIL Research

Numbers indicate average annual traded volume (Rs cr) for the last 10 years for each state

76

Majority of trading is in the 10-year and above tenures

100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
FY06

FY07

More than 10 years

FY08

FY09

FY10

Between 5 and 10 years

FY11

FY12

FY13

Between 3 and 5 years

FY14

FY15

Up to 3 years

Maturity refers to residual maturity of the instruments

Source: CCIL (FY09-15), CRISIL Research (FY06-08)

Also, in line with the issuance trend, the 5-10-year segment

remained the most active maturity for SDLs, accounting for 89%
of traded volume. Special papers issued by Rajasthan and Uttar
Pradesh with longer maturities (predating the UDAY bonds, with
no eligibility for statutory liquidity ratio calculation) were in
demand in the secondary market. Almost 5% of trading volume
was seen in tenures over 10 years.

31

77

78

Treasury bills

79

Issuance of 91-day bills tops Rs 5,000 crore

Number of issuances

Value of issuances
450

400

350

300

250

200

150

100

50

10

20

30

40

50

60

70

Rs 000 cr

FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15

Rs 100-1,000 cr

Rs 1,000-5,000 cr

Source: RBI

Issuance volume was greater than Rs 5,000 crore all through the
year, increasing aggregate borrowing in 91-day bills more than
37%.

80

> Rs 5,000 cr

In 182-day bills, issuances of smaller amounts decrease

In 364-day bills, issuances of Rs 5,000 crore and above see a

slight increase
Number of issuances

Number of issuances
30

30

25

25

20

20

15

15

10

10

5
0

0
FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY06

FY15

FY07

FY08

Rs 000 cr

Rs 000 cr

Amount of issuances

140

120

100

100

80

80

60

60

40

40

20

20

FY10

FY11

FY12

FY13

FY14

FY15

Amount of issuances

140

120

FY09

0
FY06

FY07

FY08

Rs 100-1,000 cr

FY09

FY10

FY11

>Rs 1,000-5,000 cr

FY12

FY13

FY14

FY15

FY06

Majority of auctions of 182-day bills were greater than Rs 5,000

crore. Total issuance grew 17%.

FY08

Rs 100-1,000 cr

>Rs 5,000 cr

Source: RBI

FY07

FY09

FY10

FY11

>Rs 1,000-5,000 cr

FY12

FY13

FY14

FY15

>Rs 5,000 cr

Source: RBI

364-day bills showed a similar trend as 91-day and 182-day

bills, with majority of auctions of over Rs 5,000 crore increasing
aggregate borrowing by 11%.

81

Average daily trading

Rs cr
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
FY06

FY07

FY08

91-day T-bills

FY09

FY10

FY11

182-day T-bills

FY12

FY13

FY14

FY15

364-day T-bills

Average daily trading

Trades are based on original maturity of the instrument
Source: CCIL (FY09-15), CRISIL Research (FY06-08)

91-day bills remain the most actively traded and 364-day bills
the least traded. Overall, average traded volume increased by

82

just 12%, but 91-day and 182-day bills showed growth of 17%
and 21%, respectively, while 364-day bills showed a decline of
3%.

External commercial borrowings/

foreign currency convertible bonds

83

Borrowers and issuances rise

Short-tenure issuances decline

$ million

$ million

40,000
35,000

1200

40,000

1000

35,000

30,000
800

25,000
20,000

600

15,000

400

10,000
200

5,000
0

30,000
25,000
20,000
15,000
10,000
5,000
0

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
Amount issued ($ million)

Total number of issuers (RHS)

Number of issuances (RHS)

Source: RBI

Volume of external commercial borrowings (ECB) decreased

15%, even as the number of issuances and issuers increased
15% and 8%, respectively. This was due to higher acceptance
of new smaller issuers amid lower interest rates versus bank
loans, which were costlier due to high base rates. Companies
were slightly cautious to tap ECBs, as the market expected the
US Federal Reserve to hike the Fed Funds rate in the first half of
fiscal year. Spreads widened and hedging costs increased due
to a volatile USD-INR, leading to a decline in total borrowings
last fiscal.

84

FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15

More than 10 years

(>05-10) years

(>03-05) years

Up to 3 years

Source: RBI

Issuance amount decreased by 15%. The maximum decline was

in the 0-3 years segment, where volume decreased more than
79%.

Issuances of $10 million or less dominate

Number of issuances
Issue size ($ million)

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

Up to 10

394

607

334

320

380

441

610

569

457

598

10 to 50

108

211

186

169

143

186

328

230

145

142

> $50

98

103

105

64

77

99

136

119

112

84

Total

600

921

625

553

600

726

1,074

918

714

824

Source: RBI

But most of the money gathered was through bigger-sized issues

Value of issuances
FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

Up to 10

Issue size ($ million)

1,005

1,586

1,218

1,078

1,186

1,603

2,344

1,934

1,325

1,644

10 to 50

2,724

5,119

4,785

4,162

3,176

4,294

7,806

5,250

3,466

3,114

>50

13,444

18,647

24,956

13,124

17,307

19,878

25,817

24,873

28,446

23,625

Total

17,172

25,353

30,957

18,363

21,671

25,776

35,966

32,058

33,238

28,384

Source: RBI

85

86

Chronology of
Key debt market milestones

Chronology of key debt market milestones

Government
SEBI

RBI

Years

Amendment in
provisions related
to issuances of
corporate bonds single rating
instead of
dual for
public/rights
issue, removal of
least rating
criteria, removal
of structural
restrictions
(maturity, put/call
options)

Introduction of
mandatory
dissemination,
by
Issuer, of key
information
relating to
default,
creation of
charge
and rating etc

Amendments
to
listing
agreements
to ensure
electronic
transfer
of interest
and
redemption

2006

NSE, BSE and

FIMMDA
operationalise
corporate
bond trade
reporting
platforms

Conventions
prevalent in
the Gsec market
regarding
shut period,
lot size
and daycount
introduced
for
corporate
bonds

2007

Corporate Bonds
and
Securitisation
Advisory
Committee set
up
to make
recommendations
on developing
the corporate
bond and
securitisation
markets

2008
Announcements made
on launch of exchangebased interest rate futures,
separation of equity
option from convertible
bonds to boost trading,
market-based system
for classifying
instruments based on
complexity, TDX
exemption for
listed and demand
instruments

Recommendations
of High Level Expert
Committee for the
development of
the corporate bond
and securitisation
markets accepted

Clarification
on issues of
regulatory
jurisdiction of
the RBI and
SEBI provided

SEBI (Public Offer

and Listing of
Securitised Debt
Instruments)
Regulations, 2008,
and SEBI (Issue
and Listing of
Debt Securities)
Regulations, 2008
notified

SDLs made
eligible
securities
under
the liquidity
adjustment
facility
repos

SEBI unveils
risk
management
framework
for the
debt
segment of
stock
exchanges

Mutual funds permitted

to set up an IDF
Guidelines for
Issue and
Listing of
Structured
Products/Maket
Linked
Debentures

Reporting made
mandatory for
inter-scheme
transfers of
corporate
bonds by
mutual funds

Simplified
listing
agreement
for debt
securities

Mandatory
usage of
interest rate
convention
of actual/
actual by
issuers

2009

Noncompetitive
bidding for
SDLs
introduced

Record date to be
not more than 15
days prior to
book closure for
all prospective
privately placed
issues of
corporate bonds

2011

2010
Reporting
platform
for all
secondary
market
transactions
in CPs and CDs
operationalised
by FIMMDA

Interest rate futures

(IRFs) reintroduced
with modifications

Regulated
entities
asked to
settle OTC
trades in
debt
instruments
including CPs
& CDs through
clearing
corporation

Interest rate
futures on
91-day
T-bills
permitted

Infrastructure
debt funds
under the
NBFC and AMC
routes
announced

Introduction
of guidelines
permitting
repo in
corporate
bonds

STRIPS
introduced
in G-secs

NBFCs permitted
to set up
infrastructure
debt funds

2012
Introduction of webbased system for
access to NDS
auction and
NDS-OM to
facilitate direct
participation by
retail and
mid-segment
investors

Stock
exchanges
allowed to
create a
debt segment
for trading

Registered
FPIs
allowed to
invest in
creditenhanced
bonds up to
a limit
of $5 billion

Framework for
Real
Estate and
Infrastructure
Investment
Investment
Trusts

NBFCs get to
undertake
forward
contracts
in corporate
debt

Draft
framework
on
issuance of
rupeelinked
bonds
abroad
introduced

Centralised
database
for corporate
bonds
announced to
help
market
participants

FIIs included in
list of strategic
investors in
infrastructure
debt funds

2013
Short-term
debt
securities
permitted
for corporate
repo

Credit default
swaps for
unlisted rated
corporate
bonds ermitted

Credit default
swaps on
corporate
bonds
introduced
Inflation indexed
bonds introduced

NBFCs to
undertake ready
forward contracts
in corporate debt
securities

Bonds issued
by
multilaterals
such as
World Bank
Group
(IBRD, IFC),
ADB and
AfDB in India
made
eligible
underlying for
repo

2015

2014

Issuers permitted
to consolidate
and re-issue
corporate debt
Credit enhancement
reset allowed in
securitisation
transactions for
both banks and
NBFCs

Cash-settled
interest rate
futures
on 10-year
G-sec
introduced

EPFO
allowed to
invest up to
55% in
debt
securities
issued by
bodies
corporate

New pattern of
investments in
equity, and
new
instruments
such as REITs
and InvITs
notified

Announcement
on Real Estate
and Infrastructure
Investment Trusts

Incremental FPI
investments
allowed only in
corporate bonds
with a minimum
residual
maturity of three
years, and
restrictions
announced on
liquid and
money-market
mutual fund
schemes

Annexures

87

Corporate bonds
Outstanding amount of various fixed-income securities
As on March 31, 2015 (Rs cr)
Corporate bonds

1,750,320

G-secs

4,162,571

SDLs

1,264,502

T-bills

363,704

CDs

329,096

CPs

193,270

Total

8,063,463

Source: RBI, SEBI, CCIL

Primary issuances
Private placements
Number of
issuers
FY06

Number of
instruments

99

362

432

FY07

97

498

FY08

104

613

FY09

167

FY10
FY11

Mobilised
amount
Rs cr

Amount
mobilised as
% of GDP

Ratio of
publicly
mobilised
to privately
mobilised
monies

Total amount
mobilised
as %
of GDP

79,446

44%

2.4%

NA

NA

NA

568

92,355

16%

2.3%

NA

NA

NA

681

115,266

25%

2.5%

NA

NA

NA

799

874

174,327

51%

3.3%

1,500

1%

3.3%

192

803

879

189,478

9%

3.1%

2,500

1%

3.2%

182

825

956

192,127

1%

2.7%

9,451

5%

2.8%

FY12

164

1,327

1,939

251,437

31%

3.1%

35,611

14%

3.5%

FY13

267

1,828

2,443

351,848

40%

3.7%

16,982

5%

3.9%

FY14

245

1,473

3,524

270,946

-23%

2.4%

42,383

16%

2.8%

FY15

344

1,765

5,109

432,692

60%

4.1%

9,713

2%

4.2%

Source: SEBI, RBI, Prime Database

89

Number
of deals

Growth in
amount
mobilised

Mobilised
amount
through
public
placements
Rs cr

Sector-wise break-up of number and amount of issuances

Number of issuances
FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

Agriculture & allied activities

Industry
Banking/term lending
Financial services

Of which

41

23

29

95

109

119

72

157

141

150

175

169

146

199

175

199

247

122

158

17

18

11

17

16

16

123

286

395

522

446

491

1019

1,328

1,133

1,311

11

14

21

22

13

60

51

107

Housing/ civil construction/ real estate

Power generation & supply

FY15

181

Diversified
Top 5

FY14

14

14

21

25

24

23

28

41

38

Services

321

475

584

704

694

706

1,254

1,670

1,332

1,614

Financial services

123

286

395

522

446

491

1,019

1,328

1,133

1,311

Banking/term lending

Total

181

175

169

146

199

175

199

247

122

158

362

498

613

799

803

825

1,327

1,828

1,473

1,765

Source: Prime Database, CRISIL Research

Amount of issuances (Rs cr)

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

250

400

275

Industry

18,356

7724

7,946

41,614

44,789

47,421

43,425

78,993

63,971

75,322

Banking/term lending

54,118

61,519

68,204

91,916

93,778

92,029

129,161

139,084

98,489

175,706

2,250

11,100

1,000

4,915

2,885

5,445

5,056

6,949

Financial services

5,859

21,463

36,269

31,335

39,271

44,384

64,682

105,662

95,300

144,062

Oil exploration/drilling/
refining

2,225

4,100

6,340

4,750

1,415

13,760

3,200

3,500

Agriculture & allied activities

Diversified
Top 5

Power generation & supply

Services
Of which

Financial services
Banking/term lending

Total

7,660

6,748

3,468

12,671

16,474

19,025

23,615

21,408

20,942

35,312

61,090

84,632

107,320

132,713

144,688

144,706

207,762

272,455

206,975

357,094

5,859

21,463

36,269

31,335

39,271

44,384

64,682

105,662

95,300

144,062

54,118

61,519

68,204

91,916

93,778

92,029

129,161

139,084

98,489

175,706

79,446

92,355

115,266

174,327

189,478

192,127

251,437

351,848

270,946

432,692

Source: Prime Database, CRISIL Research

90

Sector-wise break-up of primary issuances (Rs cr)

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

State financial institutions

719

1,192

1,309

254

1,337

1,425

1,575

5,394

1,482

883

Public sector undertakings

10,719

6,178

3,526

11,814

22,355

12,850

27,176

39,851

31,784

31,219

889

752

1,348

4,738

2,085

1,981

4,184

8,584

3,686

6,057

State-level undertakings
Banks

27,554

36,046

25,902

38,596

38,679

19,481

14,974

24,495

14,388

47,881

NBFCs

5,486

12,050

15,072

17,951

17,643

12,877

26,697

45,777

38,774

65,541

Housing finance companies

6,925

9,370

21,105

12,719

16,805

29,801

36,367

57,850

55,106

73,888

25,060

25,755

41,051

53,720

53,942

72,112

113,520

109,425

82,434

128,290

2,093

1,013

5,953

34,533

36,767

41,599

26,946

60,473

43,291

78,932

79,446

92,355

115,266

174,327

189,613

192,127

251,437

351,848

270,946

432,692

Financial institutions and others

Private non-financial sector
Total
Source: Prime Database, CRISIL Research

Issuances by size, amount raised and rating category

Number of issues
FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

Rs 10 cr & below

Issue size

25

45

48

172

158

192

375

496

477

394

Rs 10-25 cr

69

97

131

140

95

102

297

290

218

256

Rs 25-50 cr

63

92

107

129

98

93

166

235

184

238

Rs 50-100 cr

22

32

57

38

54

45

58

134

108

139

Rs 100 cr & above

183

232

270

320

398

393

431

673

486

738

Total

362

498

613

799

803

825

1,327

1,828

1,473

1,765

Source: Prime Database, CRISIL Research

Amount raised (Rs cr)

Issue size

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

202

374

429

1,162

904

1,197

2,408

2,109

2,160

1,936

Rs 10-25 cr

1,449

2,079

2,845

2,722

1,904

2,171

5,415

5,613

4,251

4,689

Rs 25-50 cr

2,692

3,978

4,618

5,629

4,366

4,268

6,572

9,729

7,609

9,806

Rs 50-100 cr

1,622

2,229

4,074

2,650

3,918

3,330

4,183

9,292

7,594

9,892

Rs 10 cr & below

Rs 100 cr & above

73,481

83,696

103,301

162,164

178,386

181,161

232,859

325,105

249,333

406,369

Total

79,446

92,355

115,266

174,327

189,478

192,127

251,437

351,848

270,946

432,692

Source: Prime Database, CRISIL Research

91

Private sector vs non-private sector issuers

Amount (Rs cr)
Non-private sector
Private sector
Total
Share of private sector

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

71,616

77,815

93,577

119,693

134,300

132,088

193,303

238,111

181,343

272,372

7,829

14,541

21,689

54,634

55,178

60,039

58,134

113,737

89,603

160,319

79,445

92,356

115,266

174,327

189,478

192,127

251,437

351,848

270,946

432,692

10%

16%

19%

31%

29%

31%

23%

32%

33%

37%

Source: Prime Database

Rating-wise break-up of number and amount of issuances

Number of issues
Rating
AAA
AA+
AA
AAA+
A
ABBB+
BBB
BBBBB+
BB
BBB+
B
BC
A1+
A1
Not rated
Total

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

169
84
38

284
97
52

335
100
88

371
176
136

297
279
84

318
226
87

375
574
151

566
536
222

391
520
207

585
451
330

7
3
7
4
1

7
3
10
1
2

14
13
14

29
16
10
3
9
3

54
38
19
6
5

80
53
16
5
2
5
3
1

131
23
21
12
4
1
3

320
31
67
20
5
8
6
3
2
7
2
2

72
57
46
65
41
30
26
19
17
12
3
6
1
1

3
1,765

1
1

190
29
38
7
17
12
21
12
3
10
8
1
1
4

29
1,327

28
1,829*

2
1,473

2
1

17
4
27
362

11
1
30
498

12
34
613

38
1
7
799

18
803

28
825

*Note: The rating-wise issuances are 1,829, whereas total issuances are 1,828 during the year
Source: Prime Database

92

Amount raised (Rs cr)

Rating category

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

AAA

55,241

69,753

89,273

122,856

131,208

132,075

189,447

226,311

189,396

280,348

AA+

13,682

10,438

9,152

21,349

19,758

18,775

28,054

54,742

36,917

60,466

3,990

6,440

5,372

16,393

14,285

10,851

12,587

25,351

15,360

24,345

AA-

841

680

1,606

3,235

5,023

13,856

6,237

16,946

9,404

26,707

A+

435

132

1,112

3,171

8,911

8,178

2,167

3,735

5,880

12,637

425

2,279

2,858

1,131

4,498

5,844

6,175

12,015

5,207

7,826

A-

448

48

200

2,168

890

3,414

2,536

2,243

5,357

74

1,485

705

150

918

208

453

2,859

507

32

884

1,104

1,481

83

445

323

518

2,501

2,566

192

450

2,367

95

98

2,963

2,935

791

988

B+

198

444

98

155

805

17

25

477

571

142

AA

BBB+

770

BBB

987

BBBBB+

250

BB

200

275

495

BB-

84

BC

53

A1+
A1
Not rated
Total

1,115

821

90

390

389

1,368
25

2,983

1,301

4,734

2,127

2,564

222

1,535

4,977

103

714

79452*

92,355

115,266

174,327

189,478

192,127

251,437

352,272

270,946

432,692

*Rating-wise issuances tot up to Rs 79,452 cr, whereas total issuances are Rs 79,446 cr during the year
#
Rating-wise issuances tot up to Rs 352,272 cr, whereas total issuances are Rs 351,848 cr during the year
Source: Prime Database

Issuances by maturity
Maturity (years)
Up to 3

FY06

FY07

FY08

FY11

FY12

FY13

FY14

FY15

110

229

344

317

335

466

1,096

1,203

2,609

3,805

3 to 5

60

55

106

190

160

195

228

505

472

744

5 to 10

182

132

107

151

172

178

386

577

354

454

31

61

50

59

76

117

229

158

81

106

956

1,939

2,443

3,516

5,109

> 10
NA
Total
N A: Not available
Source: Prime Database

93

Number of issues
FY09
FY10

49

91

74

157

136

432

568

681

874

879

Interest rates and sovereign yields

Interest rate*
FY06

6.50%

FY07
FY08
FY09

5.00%

FY10

5.00%

FY11

6.75%

FY12
FY13

Rating-wise spreads

Sovereign yield^

Difference

Over 10-year benchmark G-sec as on March-end

7.54%

1.04%

7.75%

8.17%

0.42%

FY06

0.96%

1.21%

1.63%

2.17%

7.75%

8.02%

0.27%

FY07

1.68%

1.98%

2.35%

2.89%

7.13%

2.13%

FY08

1.40%

1.80%

2.17%

2.66%

7.98%

2.98%

FY09

2.02%

2.69%

3.06%

3.55%

8.23%

1.48%

FY10

0.86%

1.06%

1.44%

1.84%

8.50%

8.82%

0.32%

FY11

0.94%

1.09%

1.50%

1.90%

7.50%

8.24%

0.74%

FY12

0.69%

0.84%

1.36%

1.76%

FY14

8.00%

9.29%

1.29%

FY13

0.61%

0.94%

1.42%

1.82%

FY15

7.50%

7.98%

0.48%

FY14

0.30%

0.63%

1.11%

1.51%

FY15

0.27%

0.61%

1.09%

1.49%

*Repo rate as on March-end.

^ 10-year benchmark G-sec yield as on March-end.
Source: RBI, CRISIL Research

AAA

AA+

AA

AA-

Source: CRISIL Research

Top 10 issuers in the last 10 years*

Issuer

FY06

FY07

FY08

FY09

FY10

Power Finance Corp Ltd

5,671

Housing Development Finance Corp Ltd

5,515

Rural Electrification Corp Ltd

4,894

National Bank for Agriculture & Rural Development

3,150

LIC Housing Finance Ltd

1,100

IDFC
Power Grid Corporation of India Ltd
Export-Import Bank of India

FY11

FY12

FY13

FY14

FY15

4,652

7,359

12,809

6,750

16,566

5,250

12,289

13,756

28,605

30,277

24,698

46,920

6,800

13,865

20,895

33,180

24,269

29,170

1,473

6,474

9,859

12,503

11,367

14,254

13,227

22,862

21,782

24,253

34,538

4,879

8,020

17,914

17,414

9,850

1,695

2,650

4,485

7,365

11,373

10,420

15,656

20,850

24,791

1,850

2,232

5,302

2,000

4,725

2,770

3,136

8,172

11,457

10,458

4,713

7,398

15,114

3,698

5,478

6,368

9,698

8,830

9,091

10,887

2,860

2,602

3,445

2,592

2,050

5,557

7,425

10,617

10,462

10,863

ICICI Bank

3,973

4,222

1,235

State Bank of India

3,283

9,428

6,024

4,521

8,700

3,479

1,600

4,900

6,850

8,000

2,000

2,000

*Based on aggregate issuances

Source: Prime Database

94

Average daily trading

Average daily trading (Rs cr)
FY09

630

FY10

1,613

FY11

2,437

FY12

2,476

FY13

3,047

FY14

4,025

FY15

4,584

Source: FIMMDA, NSE, BSE

Residual
maturity
(years)

FY09
Rs crore

FY10

FY11

% of
total

Rs crore

% of
total

Rs crore

FY12
% of
total

Rs
crore

FY13
% of
total

Rs
crore

FY14
% of
total

FY15

Rs crore

% of
total

Rs orore

Up to 3

41,892

28.55%

224,614

58.52%

402,614

66.90%

344,841

58.52%

339,693

46.07%

473,347

48.20%

529,827

48.77%

3 to 5

29,467

20.08%

53,962

14.06%

55,504

9.22%

74,523

12.65%

147,973

20.07%

226,315

23.04%

203,296

18.71%

5 to 10

59,726

40.70%

77,778

20.27%

85,629

14.23%

117,147

19.88%

182,262

24.72%

189,858

19.33%

283,405

26.08%

>10

15,634

10.65%

27,246

7.10%

58,097

9.65%

52,711

8.95%

67,450

9.15%

92,567

9.43%

69,946

6.44%

NA

25

0.02%

200

0.05%

0.00%

0.00%

0.00%

0.00%

0.00%

146,744

100.00%

383,801

100.00%

100.00%

589,222

100.00%

737,378

100.00%

982,088

100.00%

1,086,474

100.00%

Total

601,844

NA: Not available

Source: FIMMDA, NSE, BSE

Certificate of deposit
Average daily trading

Maturity-wise annual trading

Certificate of deposit (Rs cr)

Amount (Rs cr)

Residual maturity (days)

FY11*

FY12

FY13

FY14

FY15

1,000,007

1,530,341

1,254,390

1,183,495

1,256,828

186,812

182,189

185,702

109,702

108,142

166,320

283,821

353,011

388,186

183,585

50

1,793,102 1,681,383

1,548,605

FY11*

8,459

FY12

8,467

Up to 91

FY13

7,410

91 to 182

FY14

6,919

182 to 365

FY15

6,590

> 365

360

1,816

Total

1,353,498

1,998,165

*From August 2010

Source: FIMMDA

95

% of
total

*From August2010
Source: FIMMDA

Commercial paper
Average daily trading

Maturity-wise annual trading

Commercial paper (Rs cr)

FY11*

Amount (Rs cr)

Residual maturity
(days)

1,360

FY12

2,181

FY13

2,417

FY14

2,285

FY15

3,094

FY11*

FY12

FY13

FY14

FY15

Up to 91

186,200

469,050

535,065

509,450

677,419

91 to 182

15,061

22,625

24,789

19,025

26,837

182 to 365

13,502

23,015

24,918

24,495

22,614

214,763

514,690

584,772

552,970

726,870

Total

*From Aug 2010

Source: FIMMDA

*From Aug 2010

Source: FIMMDA

G-secs
Primary issuances
Amount
(Rs cr)

Amount issued as a
% of GSDP

FY06

143,000

4.4%

FY07

162,000

4.1%

FY08

270,000

5.9%

FY09

272,000

5.1%

FY10

424,000

7.0%

FY11

439,000

6.1%

FY12

517,000

6.3%

FY13

558,000

5.9%

FY14

568,500

5.0%

FY15

592,000

5.6%

Source: RBI, CRISIL Research

Size-wise amount issued

Amount (Rs cr)
FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

Up to Rs 5,000 cr

97,000

102,000

198,000

129,000

290,000

421,000

340,000

298,000

331,500

335,000

More than Rs 5,000 cr

46,000

60,000

72,000

143,000

134,000

18,000

177,000

260,000

237,000

257,000

143,000

162,000

270,000

272,000

424,000

439,000

517,000

558,000

568,500

592,000

68%

63%

73%

47%

68%

96%

66%

53%

58%

57%

Total
% of issuances up to Rs 5,000 cr
Source: RBI, CRISIL Research

96

Maturity-wise amount issued

Amount (Rs cr)
Maturity (years)

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

6,000

16,000

96,000

11,000

5,000

11,000

2,000

10,000

18,000

15,000

58,000

57,000

18,000

50,000

9,000

5 to 10

40,000

69,000

89,000

143,000

169,000

162,000

252,000

189,000

244,500

242,000

10 to 20

55,000

24,000

25,000

32,000

136,000

154,000

177,000

241,000

213,000

240,000

20 to 30

42,000

43,000

42,000

71,000

56,000

55,000

70,000

75,000

100,000

110,000

Up to 3
3 to 5

> 30
Total

3,000

143,000

162,000

270,000

272,000

424,000

439,000

517,000

558,000

568,500

592,000

FY12

FY13

FY14

FY15

Source: RBI, CRISIL Research

Maturity-wise issuance as a % of total

Maturity (years)

FY06

FY07

FY08

FY09

Up to 3

4.20%

9.88%

35.56%

4.04%

1.18%

2.51%

0.00%

0.00%

0.35%

0.00%

3 to 5

0.00%

6.17%

6.67%

5.51%

13.68%

12.98%

3.48%

8.96%

1.58%

0.00%

5 to 10

27.97%

42.59%

32.96%

52.57%

39.86%

36.90%

48.74%

33.87%

43.01%

40.88%

10 to 20

38.46%

14.81%

9.26%

11.76%

32.08%

35.08%

34.24%

43.19%

37.47%

40.54%

20 to 30

29.37%

26.54%

15.56%

26.10%

13.21%

12.53%

13.54%

13.44%

17.59%

18.58%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.00%

0.54%

0.00%

0.00%

> 30

FY10

FY11

Source: RBI, CRISIL Research

Average daily trading

Maturity-wise annual trading

Amount (Rs cr)

8,254

Residual maturity (years)

FY10

10,353

Up to 3

FY11

10,238

3-5

FY12

12,973

5-10

FY13

24,462

> 10

FY14

32,710

Total

FY15
Source: CCIL

97

Amount (Rs cr)

FY09

38,645

Source: CCIL

FY09

FY10

FY11

FY12

FY13

FY14

FY15

189,193

241,551

113,212

36,798

31,955

87,110

98,347

51,424

218,251

210,690

39,235

284,693

506,321

159,076

1,179,318

1,423,186

1,158,779

1,937,553

2,522,769

4,012,652

5,849,135

503,175

529,168

1,035,778

1,087,067

3,080,326

3,342,498

3,052,312

1,923,110

2,412,156

2,518,459

3,100,652

5,919,743

7,948,581

9,158,870

State development loans (SDLs)

Primary issuances
Amount
(Rs cr)
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15

Amount issued as a
percentage of GDP

14,995
21,064
69,238
120,070
117,333
99,129
159,610
171,147
200,507
233,772

0.5%
0.5%
1.5%
2.3%
1.9%
1.4%
1.9%
1.8%
1.8%
2.2%

Source: RBI (FY10-15), CRISIL Research (FY06-09)

State-wise break-up of amount issued

Amount (Rs cr)
Andhra Pradesh
Arunachal Pradesh
Assam
Bihar
Chhattisgarh
Goa
Gujarat
Haryana
Himachal Pradesh
Jammu & Kashmir
Jharkhand
Karnataka
Kerala
Madhya Pradesh
Maharashtra

FY06
1,202
386
684
262
78
116
458
348
367
225
28
1,413
872
1,012

FY07
2,726
108
857
100
512
691
401
2,168
1,420
1,738

FY08
6,650
185
1,005
1,196
400
6,775
1,673
2,226
1,192
750
4,297
1,600
8,520

FY09
10,934
26
3,101
3,700
500
7,659
2,795
1,812
1,757
1,294
7,417
5,516
7,145
17,762

FY10
12,383
79
1,747
3,207
700
600
9,000
4,000
1,420
1,327
1,070
5,750
5,456
5,048
14,650

FY11
12,000
800
2,600
300
11,293
4,450
645
500
2,408
2,000
5,500
3,700
10,127

FY12
15,875
33
4,281
670
16,500
6,528
1,440
1,500
3,175
7,500
8,880
4,000
20,500

FY13
20,000
170
300
7,100
1,500
850
14,800
9,330
2,360
3,600
2,150
9,300
11,583
4,500
16,313

FY14
25,400
230
6,500
3,000
990
16,840
12,893
2,682
4,100
1,180
14,895
12,800
5,000
24,431

FY15
17,000
306
2,950
8,100
4,200
800
13,900
13,200
2,345
1,400
4,950
18,500
13,200
10,100
25,083

98

Amount (Rs cr)

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

Manipur

265

99

247

303

503

258

150

275

350

463

Meghalaya

342

202

196

259

274

190

310

385

340

545

Mizoram

429

129

147

156

155

267

300

186

260

230

Nagaland

424

293

369

1,367

317

355

580

655

535

600

Odisha

28

3,000

Punjab

1,199

981

4,121

5,061

3,885

4,928

8,267

9,700

9,000

8,950

Rajasthan

528

1,724

4,775

6,406

7,500

6,180

4,617

8,500

8,800

12,300

Sikkim

445

115

250

293

328

40

94

215

330

1,568

1,814

4,450

8,298

10,599

8,050

13,490

15,300

17,200

22,100

181

35

156

350

285

500

645

550

150

337

350

500

600

533

302

500

470

Uttar Pradesh

891

3,248

5,300

12,594

13,503

11,200

16,118

9,500

7,750

16,100

Uttarakhand

504

369

971

1,011

300

992

1,400

1,750

2,500

2,400

West Bengal

741

1,336

11,607

12,397

12,681

9,502

22,423

20,000

21,566

21,900

8,200

14,995

21,064

69,238

120,070

117,333

99,129

159,610

171,147

200,507

233,772

Tamil Nadu
Tripura
Union Territory of Puducherry

Telangana
Total
Source: RBI (FY10-15), CRISIL Research (FY06-09)

Issuances by size and amount

Number of issues
FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

Up to Rs 500 cr

Size

84

67

73

60

65

70

88

84

109

108

> Rs 500 to 1,000 cr

05

03

32

50

47

64

59

92

89

104

> Rs 1,000 cr
Total
Source: RBI (FY10-15), CRISIL Research (FY06-09)

99

02

16

30

37

13

49

46

55

71

89

72

121

140

149

147

196

222

253

283

Amount (Rs cr)

Issue size
Up to Rs 500 cr
> Rs 500 cr up to Rs 1,000 cr
> Rs 1,000 cr
Total

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

11,956
3,039

15,467
2,349

18,074
25,782

14,179
42,952

19,845
39,743

22,428
57,173

26,599
53,739

24,371
76,518

33,072
79,719

29,189
95,800

3,248

25,381

62,939

57,744

19,529

79,272

70,258

87,716

108,783

14,995

21,064

69,238

120,070

117,333

99,129

159,610

171,147

200,507

233,772

FY11
10,127

FY12
20,500

FY13
16,313

FY14
24,431

FY15
25,083

140,134
134,154

Source: RBI (FY10-15), CRISIL Research (FY06-09)

Top 10 issuer states based on aggregate amount issued in the last 10 years
Rank

FY06
1,012

FY07
1,738

FY08
8,520

Amount (Rs cr)

FY09
FY10
17,762
14,650

Total

Maharashtra

West Bengal

741

1,336

11,607

12,397

12,681

9,502

22,423

20,000

21,566

21,900

Andhra Pradesh

1,202

2,726

6,650

10,934

12,383

12,000

15,875

20,000

25,400

17,000

124,170

Tamil Nadu

1,568

1,814

4,450

8,298

10,599

8,050

13,490

15,300

17,200

22,100

102,869

Gujarat

116

6,775

7,659

9,000

11,293

16,500

14,800

16,840

13,900

96,882

Uttar Pradesh

891

3,248

5,300

12,594

13,503

11,200

16,118

9,500

7,750

16,100

96,204

Kerala

1,413

2,168

4,297

5,516

5,456

5,500

8,880

11,583

12,800

13,200

70,813

Karnataka

28

750

7,417

5,750

2,000

7,500

9,300

14,895

18,500

66,140

Rajasthan

528

1,724

4,775

6,406

7,500

6,180

4,617

8,500

8,800

12,300

61,329

1,199

981

4,121

5,061

3,885

4,928

8,267

9,700

9,000

8,950

56,093

10

Punjab

Source: RBI, CRISIL Research

Aggregate amount issued by top 10 issuers* as a percentage of GSDP

Amount (Rs cr)
FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

Total amount issued by top

10 issuers* (Rs cr)

14,822

8,698

15,735

57,244

94,044

95,407

80,779

134,170

134,996

158,682

Total GSDP of top 10 issuer

states (Rs cr)

2,042,662

2,352,312

2,756,939

3,205,080

3,654,692

4,210,797

5,056,910

5,837,308

6,510,168

7,351,091

0.7%

0.4%

0.6%

1.8%

2.6%

2.3%

1.6%

2.3%

2.1%

2.2%

Issued amount as % of
GSDP

*Based on aggregate amount issued in the last 10 years

Source: MOSPI, RBI, CRISIL Research

100

Issuances by top 10 states* as a percentage of GSDP

State

FY06

FY07

FY08

FY09

FY10

FY11

FY12

Maharashtra

0.2%

West Bengal

0.3%

0.3%

1.2%

0.5%

3.9%

Andhra Pradesh

0.5%

0.9%

Tamil Nadu

0.6%

Gujarat

0.0%

Uttar Pradesh

0.3%

Kerala

1.0%

Karnataka

0.0%

Rajasthan
Punjab

FY13

FY14

FY15

2.4%

1.7%

0.9%

3.6%

3.2%

2.0%

1.6%

1.2%

1.7%

1.5%

4.1%

3.2%

3.1%

2.7%

1.8%

2.6%

2.6%

2.1%

2.4%

2.7%

3.0%

3.3%

0.6%

1.3%

2.1%

2.2%

1.4%

2.1%

0.0%

2.1%

2.1%

2.1%

2.1%

2.7%

2.1%

2.0%

2.3%

2.2%

2.2%

NA

1.0%

1.4%

2.8%

2.6%

1.9%

2.4%

1.4%

2.5%

2.7%

2.4%

2.0%

2.8%

1.2%

0.9%

1.6%

3.3%

3.2%

NA

0.0%

0.3%

2.4%

1.7%

0.5%

1.6%

1.8%

2.6%

2.6%

0.4%

1.0%

2.5%

2.8%

2.8%

1.8%

1.1%

1.9%

1.7%

2.1%

1.1%

0.8%

2.7%

2.9%

2.0%

2.2%

3.2%

3.3%

2.8%

2.6%

*Based on aggregate amount issued in the last 10 years

Source: MOSPI, RBI, CRISIL Research

Maturity-wise amount issued

Amount (Rs cr)
Maturity (years)

FY06

Up to 5
> 5 to 10

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

10,600

2,987

7,500

14,995

21,064

68,888

120,070

117,333

99,129

1,59,610

160,547

197,520

226,272

> 10

350

NA

Total

14,995

21,064

69,238

120,070

117,333

99,129

1,59,610

171,147

200,507

233,772

Source: RBI (FY10-15), CRISIL Research (FY06-09)

101

FY07

Average daily trading

Top 10 most actively traded SDLs*

Average traded volume

(Rs cr)
FY06

76

FY07

52

FY08

55

FY09

147

FY10

294

FY11

179

FY12

185

FY13

487

FY14

637

FY15

772

Amount (Rs cr)

Andhra Pradesh

8,491

Maharashtra

8,135

West Bengal

7,944

Tamil Nadu

6,544

Gujarat

6,361

Karnataka

5,729

Uttar Pradesh

4,988

Kerala

4,211

Rajasthan

3,141

Punjab

2,152

Source: CCIL (FY09-15), CRISIL Research (FY06-08)

*Based on average annual traded volume for the last 10 years

Source: CCIL (FY09-15), CRISIL Research (FY06-08)

Maturity-wise annual trading

Rs cr
FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

Up to 3

Residual maturity (years)

450

2,879

1,392

658

2,850

3,253

656

2,345

3,697

5,826

> 3 to 5

2,028

1,805

1,712

198

302

579

321

9,192

6,309

6,569

> 5 to 10

17,930

7,692

10,493

33,246

65,398

36,629

43,237

106,429

144,737

162,133

89

135

28

01

8,504

20,498

12,511

13,626

34,103

68,549

40,462

44,214

117,966

154,743

183,032

> 10
Total

Source: CCIL (FY09-15), CRISIL Research (FY06-08)

102

Treasury bills
91-day issuances by number and amount
Issuance size

Number of issues
FY09
FY10

FY06

FY07

FY08

FY11

FY12

FY13

FY14

FY15

Rs 100-1,000 cr

20

11

Rs 1,000-5,000 cr

30

48

43

38

32

40

16

21

13

> Rs 5,000 cr
Total

20

12

36

31

38

52

50

52

54

52

53

52

52

52

51

52

FY06

FY07

FY08

FY10

FY11

FY12

FY13

FY14

FY15

Source: RBI

Amount (Rs cr)

Issuance size

FY09

Rs 100-1,000 cr

10,000

2,000

5,500

3,500

500

Rs 1,000-5,000 cr

70,000

96,000

119,000

154,000

146,000

135,000

65,000

105,000

60,000

> Rs 5,000 cr
Total

51,500

150,000

84,000

268,000

245,000

257,000

435,000

80,000

98,000

124,500

209,000

296,500

219,000

333,000

350,000

317,000

435,000

FY08
5
21
26

Number of issues
FY09
FY10
7
7
19
20
26
27

FY11
4
22
26

FY12
26
26

FY13
26
26

FY14
15
10
25

FY15
5
21
26

FY08
2,500
40,500
43,000

Amount (Rs crore)

FY09
FY10
4,000
5,500
36,000
37,000
40,000
42,500

FY11
4,000
39,000
43,000

FY12
90,000
90,000

FY13
130,000
130,000

FY14
69,000
60,000
129,000

FY15
25,000
126,000
151,000

Source: RBI

182-day issuances by number and amount

Issuance size
Rs 100-1,000 cr
Rs 1,000-5,000 cr
> Rs 5,000 cr
Total

FY06
10
15
25

FY07
2
24
26

Source: RBI

Issuance size
Rs 100-1,000 cr
Rs 1,000-5,000 cr
> Rs 5,000 cr
Total
Source: RBI

103

FY06
5,000
22,500
27,500

FY07
1,000
36,000
37,000

Size-wise break-up of number and amount of issuances (364-day T-bills)

Number of issuances
FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

Rs 100-1,000 cr

Issuance size

10

10

17

14

Rs 1,000-5,000 c

16

24

20

16

12

26

26

15

> Rs 5,000 cr
Total

FY15

11

21

26

26

26

26

26

26

26

26

26

26

FY15

Source: RBI

Amount raised (Rs cr)

FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

Rs 100-1,000 cr

Issuance size

10,000

2,000

6,000

10,000

17,000

14,000

Rs 1,000-5,000 cr

32,000

48,000

49,000

40,000

24,000

28,000

90,000

130,000

71,000

25,000

> Rs 5,000 cr
Total

66,000

127,000

42,000

50,000

55,000

50,000

41,000

42,000

90,000

130,000

137,000

152,000

Source: RBI

Average daily trading

Amount (Rs cr)
FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

91-day T-bills

263

152

269

404

941

592

650

1,250

1,432

1,673

182-day T-bills

159

199

169

242

538

376

435

567

808

975

364-day T-bills

308

199

207

178

218

259

389

587

868

839

Total

731

551

646

825

1,697

1,227

1,473

2,405

3,108

3,487

Source: CCIL (FY09-15), CRISIL Research (FY06-08)

104

External commercial borrowings/ foreign currency convertible bonds

Issuers

Issuances

Amount ($ million)

FY06

459

600

17,172

FY07

722

921

25,353

FY08

486

625

30,958

FY09

440

553

18,363

FY10

463

600

21,669

FY11

571

726

25,776

FY12

837

1,074

35,967

FY13

692

918

32,058

FY14

541

714

33,238

FY15

585

824

28,384

Source: RBI

Maturity-wise issuance
Amount ($ million)
FY06

FY07

FY08

FY09

FY10

FY11

FY12

FY13

FY14

FY15

Up to 3

Maturity (years)

1,683

1,017

1,061

495

1,129

563

521

2,457

7,739

1,634

3 to 5

4,913

6,886

5,490

1,273

6,470

5,500

5,614

5,253

6,900

6,308

5 to 10

8,382

13,744

14,928

9,603

9,767

13,875

20,044

13,333

10,957

11,501

> 10

2,194

3,706

9,479

6,991

4,303

5,837

9,787

11,015

7,641

6,730

2,211

17,172

25,353

30,958

18,363

21,669

25,776

35,967

32,058

33,238

28,384

NA
Total
Source: RBI

105

Abbreviations

105

107

Abbreviation

Full form

ABS

Asset-backed security

ADB

Asian Development Bank

AMC

Asset management company

APMC

Agricultural produce marketing committee

ARC

Asset reconstruction company

BFSI

Banking, financial services and insurance

BGFI

Bond Guarantee Fund of India

BIFR

Board for Industrial and Financial Reconstruction

CAD

Current account deficit

CCIL

Clearing Corporation of India Ltd

CD

Certificate of deposit

CDS

Credit default swap

CP

Commercial paper

CPI

Consumer Price Index

CRR

Cash reserve ratio

DDT

Dividend distribution tax

ECB

External commercial borrowing

ECR

Export credit refinance

EPFO

Employees Provident Fund Organisation

ETCD

Exchange traded currency derivatives

ETF

Exchange traded fund

EXIM Bank

Export Import Bank of India

FCCB

Foreign currency convertible bond

FCNR

Foreign currency non-resident

FI

Financial institution

FII

Foreign institutional investor

FIMMDA

Fixed Income Money Market and Derivatives Association of India

FMP

Fixed maturity plan

Abbreviation

Full form

FPI

Foreign portfolio investors

GDP

Gross domestic product

GNPA

Gross non-performing advances

GSDP

Gross state domestic product

G-secs

Government securities

HFC

Housing finance company

HDFC

Housing Development Finance Corporation

HTM

Held to maturity

IDFC

Infrastructure Development Finance Company

IMF

International Monetary Fund

InvITs

Infrastructure investment trust

IRDA

Insurance Regulatory and Development Authority

LAF

Liquidity Adjustment Facility

MBS

Mortgage-backed security

MFI

Micro-finance institution

MOSPI

Ministry of Statistics and Programme Implementation

NABARD

National Bank for Agriculture and Rural Development

NBFC

Non-banking finance company

NDS

Negotiated dealing system

NDTL

Net demand and time liabilities

NPA

Non-performing asset

NSDL

National Securities Depository Limited

PCE

Partial credit enhancement

PFC

Power Finance Corporation

PFRDA

Pension Fund Regulatory and Development Authority

PGC

Power Grid Corporation

PSU

Public sector unit

PTC

Pass through certificate

108

109

Abbreviation

Full form

RBI

Reserve Bank of India

REC

Rural Electrification Corporation

REITs

Real Estate Investment Trust

SBI

State Bank of India

SDL

State development loan

SEBI

Securities and Exchange Board of India

SICA

Sick Industrial Companies Act

SLR

Statutory liquidity ratio

SME

Small and medium-sized enterprises

SPV

Special purpose vehicle

T-bill

Treasury bill

UPI

Unified Payments Interface

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is not available to CRISIL Research. No part of this Report may be published/reproduced in any form without CRISILs prior written approval.

111

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