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Corporate bond market in India has the potential to reach a level of 15% of GDP during the 12th Five Year Plan pushed by policy and regulatory reforms, according to the Confederation of Indian Industry (CII) survey.
Corporate bond market currently stands at below 5% of GDP.
About 57% of the respondents of the survey, Reforming Corporate Bond Market (CBM), believe that the actual potential of CBM in terms of outstanding corporate bond as a percentage of GDP is 12.5 - 15%, which could be realised with the help of policy and regulatory reforms aimed at utilising the CBM to finance infrastructure development during the 12th Plan.
All industry stakeholders including issuers, investors, market makers, credit rating agencies and technical experts were part of the survey.
On the other hand, 29% of the respondents estimated the actual potential of CBM to be 10-12.5% of GDP, while 14% of the respondents believe the potential level of CBM to be 7.5 -10% of GDP for the Indian economy.
“A robust corporate bond market is imperative to meet the funding needs of the emerging Indian economy. Concerted policy and regulatory reforms in CBM holds the key for the private sector to meet its target share of 47% in the total infrastructure investment during the 12th Plan,” says Chandrajit Banerjee, Director General, CII.
The survey noted that India is heavily reliant on budgetary support and bank credit for funding its infrastructure needs while in many countries across the world, long term debt in form of corporate or sovereign or municipal bonds form a major share of infrastructure finance. Respondents feel that limitations or inflexibility of the banking sector to meet the increasing capital requirements of infrastructure companies would be the key driver for development of CBM.
In the 12th Plan, the Government is expecting the private sector to play a key role with an overall investment growth of 131% compared to the 11th Plan.
“Corporate Bond Market offers a promising avenue for the private sector to achieve this by way of mobilising long-term resources for meeting the infrastructure needs,” the survey adds.
Industry stakeholders also ranked lack of conducive regulatory framework, inexistence of incentives and support mechanisms for willing market makers and inadequate credit enhancement facility as the biggest challenges in deepening of the Corporate Bond Market in India.
Industry stakeholders expect a slew of measures to be undertaken by Ministry of Finance and regulators (RBI and SEBI) which would encourage the private sector to mobilise long term resources from the debt market.
