An Empirical Study on Corporate Bond Market in Indian Economy

Abstract

In any economy, primarily two financial instruments- equity and debt, play an important role for raising capital for corporate sector. Though equity market has witnessed a significant growth in the recent decades, need for a deep and liquid bond market with a sizeable corporate bond market is very much important for any country. Our research paper examines the financing pattern of 85 non-financial Indian private sector companies based on CMIE database with specific reference to corporate bond. The study reveals that 90% of the companies mainly depend on borrowings from banks and financial institutions constituting the largest portion of the total borrowings followed by other borrowings, debentures/bonds and foreign borrowings. It shows that bonds/debentures still do not constitute bulk of corporate borrowings compared to bank borrowings and this highlights the importance of strengthening the bond market so that corporate can access more funds from them. In the recent past, several positive scenarios are witnessed in the Indian economy including: favourable macro-economic environment, essential need for financing large infrastructure projects across the country, favourable regulations taken by the market regulators to deepen the market (including introduction of mandatory dissemination of all information regarding the debentures to the investors and the general public in the event of default, creation of charge, revision of rating etc.). In this context, studying the financing pattern of non-financial Indian private sector companies (sample size 85, based on CMIE database for 6 years) with specific reference to corporate bonds helps to understand the growth of corporate bonds and also assess the reforms/policies initiated by various regulatory authorities and its implications on the growth of corporate bond market in India for last 10 years.