Report of Working Group on Development of Corporate Bond Market in India August 2016

Chapter 1: Introduction

1. It has been well recognized that a well-developed corporate bond market complements a sound banking system in providing an alternative source of finance to the real sector for its long-term investment needs. An active corporate bond market also helps in the diversification of risks in the financial system. In order to enable public and private sector firms to borrow for longer maturity periods in local currency to meet their investment needs and avoid balance sheet mismatches and foreign currency exposures, there is a need to accelerate the development of local currency bond market. An active corporate bond market could also provide institutional investors such as insurance companies and provident and pension funds with quality long term financial assets, helping them in matching their assets and liabilities.

2. There has been a number of reports by expert Committees on development of corporate bond markets in India viz. Report of High Level Expert Committee on Corporate Bonds and Securitisation in 2005 (R. H. Patil Committee), Report of the High Powered Expert Committee on Making Mumbai an International Financial Centre in 2007 (Percy Mistry Committee), A Hundred Small Steps [Report of the Committee on Financial Sector Reforms (CFSR)] in 2009 (Dr. Raghuram Rajan Committee), Reports of the City of London, etc. These Committees have examined in detail various aspects related to the development of corporate bond market and have made useful recommendations. Many of these recommendations have been implemented. The major recommendations on which action is not complete, broadly grouped under a 7 I framework of Issuers, Investors, Intermediaries, Infrastructure, Incentives, Instruments and Innovations, are tabulated in Annex I.

3. Many of these recommendations have been already implemented by the Government and the concerned regulators. The success of these measures in achieving the intended outcomes has, however, been varied. Impact of some of the measures taken is captured below:

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March 2024