DEBT MARKET INSTRUMENTS IN INDIA

Presented by: Krishna 02 Anupam 07 Joy 11

Definition
Debt instruments are contracts in which one party lends money to another on predetermined terms with regard to rate of interest to be paid by the borrower to the lender, the periodicity of such interest payment, and the repayment of the principal amount borrowed.

What they call

Indian securities markets: bond (issued by Central/ State governments or PSUs) Private corporate sector: debentures

Regulatory bodies
RBI SEBI FIMMDA

Market Segments and Products in Debt market

Financial Engineering

It refers to the development and implementation of innovative financial instruments and process and the formulation of creative solutions to problems in financing.

Factors in Financial Engineering

1. 2. 3. 4. 5. 6. 7. 8. Tax advantage Reduces transaction cost Risk reallocation Increase liquidity Level and volatility of interest rates Level and volatility of prices Accounting benefits Technological development and other factors.

Different types of bonds

Premium Bonds Convertible Bonds Zero Interest Bonds Mortgage Bonds Investment Bonds

Different types of bonds (contd..)

High yield bonds Fixed Income Bonds Deep Discount Bonds Zero Coupon Convertible Bonds

Different types of bonds (contd..)

Coupon Striping (Strips) Debt for equity swap Mezzanine debt Floating rate bonds

Other Hybrid debt instruments

Multi option secured redeemable convertible debentures Callable bonds Option tender bonds Guaranteed debentures

Other Hybrid debt instruments (contd..)

Indexed Bonds Inflation adjusted bonds Credit wrapping

Money market instruments

Money market instruments

Treasury Bills

Call Money Markey

Commercial Papers

Certificate of deposit

Repos

Treasury Bills (T-Bills)

There are three types of T-bills 1. 91-day 2. 182-day 3. 364-day

CALL MONEY MARKETS

Refers to the market for short term funds Overnight basis: Call money market For the period of 2 days to 14 days: Notice money market

Commercial Paper (CPs)

Short term, unsecured, negotiable promissory notes with fixed maturity Issued by rated corporate Issued at a discount on face value. In denominations of Rs. 5lakh or multiples maturities between a minimum of 7 days and a maximum up to one year

Certificate of Deposit (CDs)

Short term deposit instruments Issued by banks and financial institutions to raise large sum of money Issued at a discount to the face value Denominations of Rs. 1lakh or multiples Maturities between a minimum of 7 days and a maximum up to one year Rates are usually higher than the term deposit rates, due to the low transactions costs

Repos
Collateralized borrowing and lending Sold temporarily promise to buy back at a fixed future Date & fixed price In reverse repos securities are purchased in a temporary purchase with a promise to sell it back When one is doing a repo, it is reverse repo for the other party.

Secondary market for debt instruments

Secondary market

Wholesale Debt Market

Retail Debt Market

Wholesale Debt Market

WDM trading market is known as NEAT Trading wide range of securities like all mentioned earlier

WDM Participant wise Turnover for July 2010

Participants Indian Banks
Foreign Banks Trading Members (Corporate) Primary Dealers Financial Institution MFs Total

Shares (in %)
17.74 23.7 50.61 5.03 1.11 1.81 100

Market Capitalisation as on July30, 2010

Security Type Market Capitalisation (in Rs. Mn) % of total

Govt Securities PSU Bonds State Loans Treasury Bills Local Bodies FIs Bank Bonds Corporate Bonds Total

20044516.11 1829048.63 5598098.05 1148502.74 26271.92 876328.33 1736173.65 1508400.42 32767339.85

61.17 5.58 17.08 3.51 0.08 2.67 5.30 4.61 100.00

Retail Debt Market

Introduced to encourage all classes of investors Participants: Retail investors Trading in existing capital market segment RETDEBT Market facility is available on the NEAT system like WDM

Sources
www.nseindia.com www.bse.com www.investopedia.com www.wikipedia.com http://sawaal.ibibo.com/ http://www.nseindia.com/content/ncfm/FIMMDA.pdf

Sources (contd..)
Debt Markets by Sandeep Gupta: Sachin Bhadarkar http://www.nseindia.com/content/debt/debtup.pdf

Thank You