Finalyst November 2013 Issue November 2013 | Page 16

FINALYST

NOVEMBER 2013

-rates debt market is quite miniscule
in comparison to the developed
countries.
In US, Bond prices were hit this summer due to fears of scaling back of
Government Bond-Buying stimulus as
well as tensions over raising debtceiling. Due to this, yields became
higher and Bond prices came down.
Now the scenario is again changing
and Bond market is picking up.
RBI has taken several measures to
help raise corporate debt market.
Recently, it permitted trading in a ten Hybrid Bonds proves to be cheaper sector is unable to access the debt
year cash delivered Interest Rate Fu- for the company than issuing pure markets. The secondary market is
tures and allowed credit enhancebond or equity as the interest on also 0.03% of the total trading done.
ment to boost the corporate bond

bond issues is tax deductible whereas Other hindrance factors for corpo-

market. Bondholders such as banks

the dividends on equity are not. In rate debt market in India include-

and G-secs, will use this derivative

most of the cases, hybrid bonds are Low investor base, high costs of issutool to increase returns and minimize not convertible into equity i.e. di- ance, lack of transparency in trades.
the risk. The central bank has alluting its stakes. However, issuer can However, we do have some positive
lowed banks to offer partial enhance- stop paying interest payments if it aspects like major stock exchanges,
ment to corporate bonds, a task that stops paying dividend on its shares. CCIL and multiple rating agencies to
banks can accomplish by providing
One more feature of Hybrid bonds meet the requirement of assessment
credit and liquidity facilities to corpo- are that they are not redeemable or quality of bonds.
rate.
have very long maturity periods apThe development of the corporate
Innovation is going on in debt mar- prox. 60 years, but have high interest
debt market can also be seen as a
rate payments. About 23 billion Euket.
way of mobilizing savings, either by
ros of Hybrid Bonds have been issued
One of the famous instruments is
encouraging direct retail participain Europe this year.
subprime mortgage-related bonds
tion in bond markets or, more likely,
India Challenges-Corporate debt.
and we all are aware of the much
by encouraging the development of
trouble they caused leading to the
meltdown of 2007-2008. But still the
Bond industry has the prowess of
having more innovations and tries to
make them successful.

India is a bank dominated country
and around 90% of the assets of financial sector are held by the banks.
In India bulk of the debt is raised

indirect investment vehicles. Thus, a
successful corporate bond market
might also increase the supply of investment capital to firms.

through private placements and SME
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