CHAPTER 2

LITERATURE REVIEW

1. Dr. Ravindra Tripathy et al (2004) appreciate the initiatives of RBI and Sebi in
developing the debt market in India and emphasize the need for more such regulatory
reforms. The authors identify a number of weaknesses in the Indian debt market that is
responsible for illiquidity in the market. Although they suggest development of
infrastructure for increasing retail investment in the debt market in India, yet there is lack
of completeness on the way forward.
2. M.T.Raju et al (2004) identifies three factors for development of the corporate bond
market - Development of Bond Manager, Diversity of investors and good quality of
papers. The authors view that out of the above three factors, the second factor is
exogenous and the third factor can be achieved in the long run. However, the
development of bond manager can be achieved in the short run. There is a gap in the
study in absence of any link established among the issuer payment bank and investor.
3. Marvin Goodfriend (2006) emphasized the necessity of a 'spare tyre' provided by the
functioning corporate Bond market as resilience due to any major financial shock. He
urges the Government to stabilize the purchasing power of local currency to enable retail
investment in bonds. The author ignores the possible alternatives in the event the
Government fails to hold the currency purchasing power.
4. Muhammad bin ibrahim (2006) states that Malaysia has a very large spare tyre called
'private Debt securities (PDS) market' which is larger than the local Government bond
market. Chandan Sinha of RBI (2006), India emphasized the need for transparency for
development of the retail bond market in India. The other obstacles for growth of the
market as pointed out by him are bias of household financial savings towards bank
deposits and Government paper. But in the current scenario of low interest rate and
reduced fiscal deficit, the retail participation in the corporate Bond market is almost
absent.
5. Hema P. Gwalani and Dr. D. B. Bharati (2015) in their study of An Analytical Study
of the Awareness Level of Corporate Bond Market in India among Retail Investors
found that Increasing the Liquidity in Corporate Bond Market has been a major agenda
for the Government and for the Capital market authorities for long now. Various efforts
 in the forms of reforms, change in guidelines and making availability of the required
infrastructure has been made in the direction but still the efforts does not seem to give the
expected results when it comes to the participation retails investors in Corporate Bond
Market India. . One of the major reasons of the non-participation has been lack of
sufficient awareness on the part of retail Investors. This paper tries to measure the
awareness level about the Corporate Bonds and also the reasons for the non-participation
of the retail investors in the Primary and Secondary Markets of Corporate Bond Market,
with the help of data collected and its statistical analysis.
6. Garima Raghuwanshi (2015) in his study of Indian Financial Stability and Debt
Market found that this study presents an empirical evidence of the primary debt market
in India. Bond markets rarely fulfill the alternate role to bank financing in India. The
benefits of bond markets include diversifying credit risks across the economy by
providing an alternative to conventional bank lending. Bond markets supply longterm
funds for the growth of the infrastructure or other sectors to fulfill long-term investment
needs. They provide diversity in financial products with flexibility to meet the specific
needs of investors and borrowers. Timing of an issue and the conditions of the economy
including the triggers in other markets could impact the activity in the whole sale debt
market. Issues that satisfy the needs of investor segments could improve participation.

7. Samir K Barua, V Raghunathan, Jayanth R Varma, and N Venkiteswaran (1994) in

their study of Analysis of the Indian Securities Industry: Market for Debt found
that in the current liberalized environment, the Indian debt market appears to be all set to
take off. With the commencement of trading of debt instruments by the National Stock
Exchange this year, the secondary market of the Indian debt market is expected to
achieve a significant level of activity. In this context, a closer understanding of the Indian
debt market in terms of the private corporate sector, public sector, government sector,
and the housing finance sector assumes increased importance. In this paper, the authors
provide the much needed perspective on the Indian debt market as a whole and make
recommendations for its development wherever necessary.

8. Suchismita Bose and Dipankor Coondoo (2003) in their study of the Indian
Corporate Bond Market found that within any country’s capital market, it is essential
that there exist a well-developed bond market with a sizeable corporate bond segment
alongside the banking system. In this paper, we make an attempt to understand the nature
 and extent of imperfection of the Indian market for corporate bonds using available data
on secondary market trading channelled through the major stock exchanges. We examine
some aspects of the market which include depth of the market in terms of frequency of
trading of outstanding bonds; composition of the market in terms of trading of debt of
various risk categories as indicated by their credit ratings; relationship between Yield-to-
Maturity (YTM) and volatility of return; nature of the spread between YTM of different
risk categories of bonds; relationship between market depth and price/YTM; and the
market pricing of risk.

9. M. Subramanian (2008) in his study of Debt Market @ Corporate India: Key Issues
found that debt is said to be the tax shield for an Indian company for all its financial
needs. The mix of debt capital ensures a good leverage. This paper presents an overview
of the debt market @ corporate India’s practices & key issues bundled within. A study of
the structure and the status of the corporate debt market along with the current policies
initiated by Securities and Exchange Board of India, help to identify the associated
structural problems in this segment. Based on a detailed analysis of these identified
problems, this paper aims at suggesting certain steps, which can help to activate the
corporate debt market and to become an important source of finance for the economy.

10. Sanjay Banerji, Krishna Gangopadhyay , Ila Patnaik, Ajay Shah (2011) in their
study of New thinking on corporate bond market in India found that how to examine
the factors behind underdevelopment of corporate bond market in India. One of the major
bottlenecks to the development of this market lies in relatively larger costs of financing
which dissuade the firms to raise finance from this avenue. They argued that the lack of
transparency, inefficient market making and illiquidity of the instrument not only lead to
such extra costs of financing that hampers investment in the real sector but can trap the
bond market in a low level equilibrium. To alleviate such problems, some policies should
be combined to include mandatory disclosure of ratings by firms and assignment of
multiple agencies for rating an issue at different points of time, minimum size of
placements of (infrastructure) bonds, establishing stop loss threshold, among others will
help breaking the trap and improve quality of issues and would eventually lead to a
vibrant bond market with reduced costs of financing investment.
11. Amtul Majid Fazeelath (2013) in his study of Indian Debt Market – A Current
Paradigm found that development of long term debt market is critical for the
 mobilization of the huge magnitude of funding required to finance potential businesses.
India has ill-defined long term corporate debt market. Traditionally, bank finances along
with equity market and external borrowings have been preferred funding sources. Large
fiscal deficit, high interest rates, inadequate market infrastructure, lack of transparency,
excessive regulatory restrictions on the investment of financial institution may have
hamper the development of well functioning corporate debt market. This paper deals with
over view of the literature, steps that should be taken to reform the debt market and how
a debt market can be used as a tool in transforming the Indian economy.

12. Pronab Sen, Nikhil Bahel and Shikhar Ranjan (2003) in their study of Developing
The Indian Debt Capital Markets: Small Investors Perspectives found that the
secondary debt market in India is practically non-existent. This paper argues that with the
recent economic reforms, an efficient and active debt market, particularly in long-term
private debt instruments, is essential for the country to realize the full benefits of the
reform process and to achieve its potential. It is further argued that the presence of small
investors is critical to this process, given the limitations of the institutional investors. The
essential conditions for a well-functioning debt market are identified from a study of the
U.S. and European markets, and an assessment made of their presence in India. Specific
concerns of small investors in the Indian context are described, and suggestions made as
to how these can be addressed.

13. Rajeswari Sengupta and Vaibhav Anand (2014) in their study of Corporate Debt
Market in India : Issues and Challenges found that at the current time, when India is
endeavoring to sustain its high growth rate, it is imperative that financing constraints in
any form be removed and alternative financing channels be developed in a systematic
manner for supplementing traditional bank credit. While the equity market in India has
been quite active, the size of the corporate debt market is very small in comparison with
not only developed markets, but also some of the emerging market economies in Asia
such as Malaysia, Thailand and China. A liuid corporate bond market can play a critical
role by supplementing the banking system to meet the requirements of the corporate
sector for longterm capital investment and asset creation. While it is true that the Indian
corporate debt market has transformed itself into a much more vibrant trading field for
debt instruments from the elementary market about a decade ago, yet there is still a long
way to go.
14. Sundaresan (2006) advocates structural reforms in the Bankruptcy code, investor
protection, corporate governance, transparency, price discovery mechanisms and legal
contract enforcement for the development of the corporate bond market. The study is
one-sided and does not reflect on the role of retail segment in the development of the
corporate bond market. Bankcrupcy code, though, recently enacted in India, there is little
sign of emergence of a vibrant corporate Bond Market, which suggest further work on the
market.

15. Rakesh Mohan (2006) analyses the high cost of issuance of public issues due to rating,
listing, disclosures and marketing requirements. He further mentions that due to high cost
of issuance the private placement route is more popular. He suggests development of
market making institutions and marketing networks. Randall Dodd and Stephany
Griffith-Jones (2006) concludes that Derivatives market have two economic purposes, 1)
Price Discovery and 2) Risk Transfer. They argue that Dervatives not only help to
determine spot prices but also Future Prices. Corporations were found to prefer options as
a means to hedge.

16. K Ravichandran (2007 observes that the younger generation is willing to invest in the
capital Market and that too highly in the Derivative segment. Even if there is lack of
knowledge on Derivatives, they are found to take decisions with the help of their friends
or even brokers. The author argues that the awareness of Derivatives by the investors
help them to reduce risks and also make profit.

17. Hendrik and William (2008) studied the effect of Transparency on the corporate Bond
market. They observe that with launch of the TRACE system in US, the transaction price
reporting in the corporate bond market through the TRACE system gave a major shock to
the market dealers of the earlier opaque market, whereas investors are benefitted by a
decline in the buy-ask spread. The authors speaks of rationing the information but ignores
the retail investors’ perspectives

18. Partha Ray (2009) in the study of Development of the Indian Debt Market found
that in tracing the evolution of the Indian debt market, this paper documents the
 developments in both the government securities (G-Sec) and corporate debt markets since
the initiation of the economic reforms in the early 1990s. The reforms in the G-Sec
market have been relatively comprehensive, touching on all aspects related to
institutional development, the building of legal, payment and settlement systems, and
improvements in market practices. These have been also been accompanied by changes
of far-reaching significance in public finances – both at the central as well as state levels.
The paper provides a quantitative evaluation of the progress made in the government
securities debt market and corporate debt market.

19. Dr. Manas Chakrabarti in his study of Corporate Bond Market in India: An
Empirical Study found that a vibrant corporate bond market provides a suitable
alternative to conventional bank finances and also mitigates the vulnerability of foreign
currency sources of funds. In India, the regulators have taken proactive steps and
provided the market with tools of risk management. Efforts are on to enable wider
participation the market and create scope for market making. However, Development of
debt market is not a one-off affair. It’s been able to foster the development of a deep and
liquid G-Sec market in India; and there are issues that need continued coordination and
cooperation between the market participants and the regulators to develop private bond
market for making India’s bond market truly global debt market.

20. Shagun Thukral, Sharada Sridhar, Medha Shriram Joshi in their study of Review
of factors constraining the development of Indian corporate bond markets found
that
Corporate bond markets in India, although steadily progressing, is still impeded by the nature of
the market itself. While the necessary steps have been taken to implement some of the
recommendations by the Expert Committee, the response solicited has not quite been as
expected. The poor liquidity, weak rating-mechanisms, absence of standardization and disclosure
nomenclatures and illiquidity in the government bond market itself need to be addressed
objectively.

21. Michael Fleming, Samita Sareen and Seema Saggar (2016) in their study of Trading
Activity in the Indian Government Bond Market found that how to explore the
determinants of trading activity and find that variables one might expect to be associated
 with liquidity, such as benchmark status, issue size, and time since issuance are
correlated with activity in the expected way. Moreover, we find that the launch of NDS
OM is associated with a reduced likelihood of a bond trading, but greater trading volume
conditional on it trading.

22. Basudeb Guha-Khasnobis and Saibal Kar in their study of The Corporate Debt
Market found that traditionally, firms in India have shown a low preference towards
debt financing, despite its advantages. Despite a substantial increase in the secondary
market turnover through issue of corporate debt, it remains a rather small fraction of the
total turnover, with the transaction through the government securities still overwhelming.
Although it is often argued that transaction in the corporate debt market in India might be
the source of many unscrupulous activities since it is mostly through private placements
and lack sufficient control and supervision by the regulatory authority, there is little
doubt that it is a cheaper option for the firms to raise capital through this market.

23. Vinay Mishra and Harshita Bhatnagar (2009) argue that Derivatives markets are an
integral part of capital market in both emerging and developed markets. Derivatives assist
business growth by disseminating price signals with respect to exchange rates, indices or
other assets.

24. A Mitra (2009) points out the lack of diversity in instruments in India with more
issuance of standard fixed coupon bonds of average maturity of 5 to 7 years.
Internationally as they observe, variety of bonds are available like step up bonds.

25. Amarendra Acharya (2011) studies the various stages of development of the corporate
bond market in India. The author views that only measures to make public offerings
attractive will help to ensure participation of the retail investors. This will also result in
bringing liquidity in the market, he suggests. The study also reveals a unidirectional
casualty from call rate, Exchange rate and Inflation rate to the bond yield. The study does
not reveal what type of retail friendly bonds would increase retail participation.

26. Tirath Ram Basra (2011) in their study on the role of Merchant Banking in Public
Issues observes that the presence of merchant bankers is concentrated in Mumbai. Wide
retail distribution network of Merchant Bankers have been emphasized in the study for
 success in public issues. To boost the investors’ confidence the authors suggest
dissemination of fair price, transparency and integrity with regulatory governance

27. Kanad Chaudhari et al. (2014) suggest public issue of debt on account of whole or part
of existing bank loans. Other suggestions to attract retail investors are demat trading, tax
incentives, lower lot size, retail investors’ quota, bond indices and credit enhancement

28. Sunder Raghavan et al. (2014) suggests more measures from Government to make
corporate bonds more attractive to the retail investors as an alternative to 12 13 small
savings schemes. The authors view that in spite of the reform measures by the SEBI the
retail investor market in corporate bonds still remain shallow but the gap remains in this
study on how to make the retail market vibrant.

29. Smt. Arundhati Bhattacharya (2015) has stressed upon the need for investors’
education on corporate Bonds and also allowing tax-free status to the Private sector
corporate also. The author however overlooks the changing perception of the retail
segment with diversity in risk-return appetites across all maturities over 14 and above the
traditional tax free bonds with implied Government guarantee.

30. Shamim Ansari Mohd. (2012) opines that low yield and absence of hedging
opportunities are responsible for narrow corporate bond market in India. The author
points out that the retail investor intermediation in India is mainly through the Banking
system and suggests that there is a need for innovative financial instruments with
innovative regulations and service providing mechanisms to channelize the domestic
savings towards the most productive sectors.