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Issues Related to Indian Corporate Debt Market

Poor Quality Paper

Poor quality paper with a possibility of non-payment of coupon and principal poses threat to the development of the market and hence stringent regulatory norms are required in an emerging market like India.

Inadequate Liquidity

Secondary Market for Corporate Debt lacks liquidity in India. This is due to inadequate number of good papers and sufficient investor base in terms of quantity as well as diversity.

Investor Base

In developed markets, there is wide variety of investor base consisting of mutual funds, insurance companies, pension funds, private banking institutions, banks and retail investors. In India, though mutual funds are investing in bond funds but their requirements are one sided. Insurance funds and pension funds are the long-term investors who absorb any short-term shocks. But Insurance companies in India are limited and no trace of pension fund. Banks do invest in the primary market and their activity in the secondary market is almost negligible.

Regulatory Arbitrage

Listed companies are required to follow elaborate corporate governance principles, accounting and disclosure standards, continuous disclosure standards and hence incur additional costs. Unlisted companies thus enjoy regulatory arbitrage over listed companies.

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* Contributed by: -
Jayanta Das & Kartavya Soni,
ICFAI Business School, Hyderabad.