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The report said key challenges like high entry costs, information asymmetry, and the absence of a secondary market must be addressed to deepen the market.
Currently, with 97% of issuances concentrated in top-rated bonds, smaller players are effectively shut out. As a result, India's corporate bond market is under-capitalised and as a percentage of GDP is only 18%, compared with 80% in South Korea and 36% in China.
Liquidity is "bottled" through regulations, such as provident funds facing restrictions on investment tenure that prevent them from allocating capital to corporate bonds for more than three years, the report said. Also, insurance funds are barred from investing in debt issued by private companies.
Most issuances are by non-banking finance companies and public sector units, which are concentrated in the top three rating categories AAA, AA+ and AA, it said, adding that therefore issuers who are don't get these ratings are unable to access the bond market.
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The value of corporate bonds has risen, driven by increasing investor demand and elevated costs of borrowing from banks, which made these markets more attractive for corporates for funding requirements. Corporate bond issues totalled ₹7.3 lakh crore from April to December 2024, with an average monthly issuance of ₹0.8 lakh crore, higher than the average of ₹0.66 lakh crore in the same period of the previous year.
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Private placements were the preferred channel for companies, accounting for 99.1% of the resources mobilised through the bond market in April-December. In FY24, public placements stood at ₹19,000 crore against private placement of ₹8,38,000 crore.
