SEBI Chairman Ajay Tyagi today highlighted the need to develop the corporate bond market across the rating curve and interlinking it with the government-security (G-sec) market. The corporate bond market in India is largely restricted to top rated bonds in India. Tyagi, speaking at FICCI's two-day 17th Annual Capital Market Conference stated that 97% of the bond trading happens in top rated corporate bonds -- AAA, AA-plus and AA. In the US, 75%of the corporate bond trading happens in the next three trading buckets -- A, BBB and BB.
The amount of outstanding corporate bonds in India has grown from INR 15 trillion in 2013-14 to INR 33 trillion in 2019-20 reflecting a CAGR of about 14%. Correspondingly, outstanding bank credit has grown at a CAGR of about 9% with the figures rising from INR 61 trillion to INR 104 trillion during the same period. Although, corporate bond market has seen higher growth rate over the last 5-6 years as compared to outstanding bank credit, in absolute terms it is still around one-third of the bank credit.
He noted that there is an inter-linkage between the corporate bond market and G-Sec market. Typically, the pricing of corporate bond is benchmarked to that of G-Sec of corresponding maturity. However, in India, trading in G-Secs is concentrated only in the 7-10 years' maturity bucket. There is a long way to go to have a continuous yield curve for G-Sec. This affects pricing of corporate bonds.
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