‘Debt market in India remains undercapitalised; risky borrowers unable to tap market’

India’s equity market has rapidly grown particularly after the pandemic, but its debt market remains undercapitalised, according to the Economic Survey for 2024-25 tabled in Parliament on Friday.

Corporate bond issuances in India for the period April to December 2024 rose to ₹7.3 lakh crore, with an average monthly issuance of ₹0.8 lakh crore as against ₹0.66 lakh crore during the same period the earlier year. Still, the size of India’s corporate bond market stands at just 18% of the country’s total GDP as against 80% in Korea and 36% in China, the Survey noted. A majority of these funds were gathered by firms through private placements, thus deterring the participation of retail investors. “In FY24, the public placement of corporate bonds stood at ₹19,000 crore against the private placement of around ₹8,38,000 crore,” the Survey found.

Most of the borrowing in the bond market was done only by borrowers with the highest credit ratings. About 97% of corporate bond issuances came from firms with the top-three highest ratings (AAA, AA+, and AA), the Survey noted. It further mentioned that this could be the reason why most borrowers in the bond market are NBFCs and PSUs.

“If liquidity has to enter corporate bond markets, problems such as entry costs, information asymmetry, and the absence of a secondary market must be addressed,” the Survey pointed out.