HISTORY OF INDIAN DEBT

MARKET

CONCEPTIndian debt market mainly comprises trading of bonds.In finance, a bond is a debt security, in which the issuer owes the holders a debt and is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity.

ComponentsInvestorsRegulatorsDebt market segmentsMajor classification G-secCorporate

HISTORYThe Indian debt market has traditionally been a wholesale market with participation restricted to few institutional players – mainly banks. The turnover in the debt markettoo was quite low a few hundred crs till the early 1990s.The debt market was fairly underdeveloped due to the administrated interest rate regime and the availability of investment avenues which gave a higher rate of return to investors.

In the early 1990s, the government needed a large amount of money for investment in development and infrastructure projects. The government realized the need of a vibrant, efficient and healthy debt market and undertook reform measures. In 1991,abolition of tax deductions at source on G-secs, permitted foreign institutional investors to invest in bebt instruments.The discount and finance house of India along with public sector banks were accredited as primary dealers.

The narasimham committee recommendationGradual introduction of other players, local and foreign and PD operations gathered momentum post 1996.Government securities form the oldest and most dominant part of the debt market in india.

EVOLUTIONIn recent past local bodies such as municipal corporations have begun to tap Indian markets for funds.Now, why for funds ?Because the central government mobilises funds mainly through issue of dated securities and T-bills, while state governments rely solely on state development loans.To meet statutory requirements banks, insurance companies and financial institutions invest.

The gradual withdrawal of budgetary support to PSUs by government since 1991 has increased their reliance on the bond market for mobilizing resources.The Indian corporate sector relies, to a great extent, on rasing capital through debt issues, which comprise of bonds and CPs.

EVOLVED Now, bonds issues are being placed through private placement route, these bonds are structured to suit the requirements of investors and issuers.Securitized products, corporate bond strips and variety of floating rate instruments with floors and caps are innovations in corporate bond market.

Recently there is increase in insurance of corporate bonds with embedded put and call options. While some of these are traded in stock market, the secondary market for corporate debt securities is yet to fully develop.It also has a large non-securitized, transactions-based segment.

ACKNOWLEDGMENT A HEARTY THANK TO PROF.MITUL FOR PROVIDING US WITH THIS ENLIGHTING AND INTRESTING TOPIC TO PRESENT ON.Thank you sir.