Crowding out by government, lack of FII participation main concerns.
The Economic Survey has stressed the need to deepen the domestic capital markets and the role of non-banking financial institutions especially in the corporate bond and debt markets.
“With bank finance drying up for long- term infrastructure projects in view of asset liability problems faced by the banking system, the need for further development of a deep and vibrant corporate bond market can hardly be overemphasised,” said the Survey.
Pointing out that the government securities market had evolved over the years and expanded due to the increasing borrowing requirements of the Centre, the Survey said that, in contrast, the corporate bond market had languished, both in terms of market participation and structure. In 2009-10, private placements of corporate bonds listed on the BSE and NSE had raised Rs 212,635 crore. Till November 2010, Rs 147, 400 crore were raised through this route. The number of issues were also fewer – from 1,278 issues in 2009-10 to 929 issues till November 2010.
Among the emerging markets, India ranks among the lowest for money raised through bond issuances. In 2009, Brazil raised $10.1 billion, Russia $10.8 billion, China $3.3 billion and India $2.2 billion.
The report has spelt out specific reasons for the lack of participation in the corporate debt market. These include pre-dominance of banks loans and limited participation from foreign institutional investors (FII), pension and insurance companies and households. In addition, lack of investor-confidence and crowding out by government bonds are other main factors for subdued interest.
“The corporate bond market as a result is only about 14 per cent of the total market. With the intervention of the Patil Committee recommendations, the corporate bond market is slowly evolving,” observed the survey.
