DEBT MARKET IN

INDIA

Presented by Group No 1
CAPITAL MARKET
 The capital market is the market for
securities, where companies and
government can raise long term funds.

CAPITAL MARKET

STOCK MARKET BOND MARKET

DEBT MARKET
 Debt market is a financial market where
participants buy and sell debt securities,
usually in the form of bonds.
Types of bond markets
 Corporate
 Government & Agency
 Municipal
 Mortgage Backed, Asset Backed, and
Collateralized debt obligation
 Funding
Bond market participants
 Governments
 Institutional investors
 Traders
 Individuals
Market Structure
Indian Debt Market - Current Scenario

 Govt Bond market -considerably larger

than the emerging East Asian markets
 Corporate Bond Market - less developed
than most other countries
 Turnover ratio for G-bonds is lesser
Reforms in the Bond Market

 Auctioning new issues – 1992

 Introduction of Primary Dealers – 1996
 Open Market Options
 Time table for Treasury Bills – 2001
 When Issued Grey Market -2006
 Negotiated Dealing System -Order Matching
Segment
 Clearing System operated by CSGL
 RTGS introduced in 2006
Issues in the Corporate Bond Market

 Prospectus to long
 Disclosure requirements identical
 Issue process is very slow
 Demand is limited
 Companies with high credit ratings
dominate
 No single database of bonds
 No universal conventions for day count,
interest calculation
Reforms in the Corporate Bond Market:

 Dematerialization of holdings, as
required by SEBI
 Increased transparency
 Linking of local rating agencies
 Agreement on starting repos in
corporate bonds between SEBI and RBI
 Enhanced Documentation
Future Developments
 Relax exchange controls
 Ease investment mandates
 Develop exchange and OTC derivatives
 Consolidate the outstanding stock
 Reform stamp duty
 Reform disclosures for public offers
BOND VALUATION
 It is the process of determining the fair price
of a bond.

 The fair price of a straight bond is

determined by discounting the expected
cash flows.
 Cash Flows

 Discount rate

 Bond Price
m

Po=Σ C/ut + F/(1+r)T

t=1

 Coupon yield(C / F )

 Current yield(C / P0)

 Yield to Maturity
BSE WDM segment
Credit Rating
 Credit rating measures the credit risk arising from
transactions between the lender and the borrower
 Credit Rating Agencies

High Investment Grades

Investment Grades

Speculative Grades
Listing of Securities
Trading Securities

 Trading in WDM – 3 phases

Pre Open
Market Open
SURCON
TRADING SYSTEM

 Fully Computerized Online Trading System

 Facility for Screen based Trading
 Flexibility
 Detailed Information
Clearing and Settlement
 Rolling Basis
 Settlement Period ranging from T to T+2
 Trade Reported to RBI-SGL
Risk Management
 Base Capital & Network Requirements
 Clearing Member of Capital Market
 Trading members of WDM
 Settlement Guarantee Fund
 IFSD of 5 lakhs

 Margin and Gross Exposure Limits

 Mark to market margins – T+1 day
 Gross <= 20
Pitfalls in the Indian Bond Market

 Attitude of various market participants

 Corporates
 FII s
 Pension Funds and Insurance Sector
 Households
 Documentation
 Issue Process Speed
 Domination from the High credit rating companies
Developments in Bond Market
 Establishment of CRISIL
 Widening of Investor Base
 Scheme of Non-Competitive Bidding
 Order Matching Trading Platform (NDS-OM)
 Real Time Gross Settlement
 “When Issued” Trading
 IRS/FRA
Recommendations

 Enhance the investor base

 Ease investment mandates
 Develop Derivatives and Swaps market
 Consolidate outstanding stock of govt bonds
 Reform Stamp duty
 Reform disclosure of public offers of corporate bonds
 Infusion of Liquidity
 Reliable Credit Rating Agencies for Corporate bond
CONCLUSION