India’s corporate bond market must grow nearly seven times its current size if the country is to meet its long-term financing demands and reduce its heavy reliance on bank-led debt, NITI Aayog CEO B.V.R. Subrahmanyam said on Wednesday. He was speaking at the release of a comprehensive report titled Deepening the Corporate Bond Market, which examines the structural barriers holding back the sector.
Subrahmanyam drew a sharp contrast between India’s equity markets and its underdeveloped bond ecosystem. While India’s equity markets are globally competitive, the corporate bond market is only one-seventh their size. By comparison, the United States has a bond market larger than its equity market. India’s corporate bond market stands at roughly $650 billion, whereas the United Kingdom—an economy smaller than India in GDP ranking—has a corporate bond market exceeding $4 trillion, nearly six times larger.
The NITI Aayog chief warned that the imbalance could become a bottleneck for India’s growth ambitions, particularly as the country attempts to scale up infrastructure, housing and other capital-intensive sectors that depend on long-term financing. At present, only one-sixth of corporate debt in India is raised through bonds. Large, creditworthy companies dominate the market, while MSMEs and mid-sized firms remain largely excluded.
The report identifies systemic gaps across regulatory frameworks, market architecture and investor access. Insurance and pension funds are restricted largely to AA-rated or above securities, limiting capital flows to non-banking financial companies and infrastructure projects. The credit rating landscape is tightly skewed, with AAA and AA papers accounting for 94% of the market. Hedging instruments remain thin, illiquid and seldom used.
Bond issuance is slowed by overlapping oversight from SEBI, RBI and the Ministry of Corporate Affairs, contributing to timelines of 20 to 60 days—far longer than the 1 to 5 days seen in the U.S. and U.K. Short tenors, a narrow secondary market and a persistent bias toward top-rated bonds have further constrained market depth.
Market infrastructure also remains fragmented. Banks dominate as arrangers, and bilateral settlements continue to underpin most over-the-counter trades. Multiple siloed databases maintained by various regulators result in inconsistent and delayed data. Beyond the 10-year benchmark yield, market liquidity thins out sharply, creating challenges in pricing long-duration bonds.
Retail participation is minimal. Private placements account for 98% of issuances, leaving little room for individual investors. Subrahmanyam noted that an average Indian saver today can choose between fixed deposits and equity-linked mutual funds, but has almost no meaningful access to corporate bonds.
The report lays out a six-year roadmap divided into three phases, recommending regulatory coordination, improved infrastructure, broader issuer participation and the introduction of newer instruments such as green bonds, energy transition bonds, rural development bonds and MSME-focused securities. Technology-driven platforms modelled on the success of equity markets are expected to play a central role.
Early steps will focus on harmonising regulations, strengthening market infrastructure and encouraging regular issuances. The roadmap also suggests exploring government underwriting for select bond categories.
Subrahmanyam said a decisive expansion is achievable if the reforms are implemented with urgency. By the end of the second phase—four years from now—the bond market could “explode” in size and depth, he noted, creating a more balanced and resilient financial system.
-ANI
