DEBT

•Presented By
•Akshit-5042
•Shivam-5022

MARKET •Alex-5067
INTRODUCTION
• The debt market, or bond market, is the arena in which
investment in loans are bought and sold. There is no
single physical exchange for bonds. Transactions are
mostly made between brokers or large institutions, or
by individual investors.

• The Indian debt market is divided into two segments:

markets for government securities (G-Sec), which
consist of both federal and state government
securities, and markets for corporate bonds.
FEATURES OF DEBT MARKET
• The market has various features that are beneficial for investors in various ways:

• The companies that issue securities have a credit rating that helps in
determining the creditworthiness of the company.

• The prices are determined by demand and supply so it is fair to the investors.

• Investors can calculate the yield on the basis of the information provided and
invest accordingly.

• The securities are kept in digital form so there is a lesser risk for the investors.
ROLE OF DEBT MARKET IN INDIAN
ECONOMY
• The key role of the debt markets in the Indian Economy stems from the following reasons:
• Efficient mobilization and allocation of resources in the economy

• Financing the development activities of the Government

• Transmitting signals for the implementation of the monetary policy

• Facilitating liquidity management in tune with overall short-term and long-term

objectives

• Since the Government Securities are issued to meet the short-term and long term financial
needs of the government, they are not only used as instruments for raising debt, but have also
emerged as key instruments for internal debt management, monetary management and short-
term liquidity management.
 Reduction in the borrowing cost of the Government and
easy mobilization of resources at a reasonable cost.

Provides greater funding avenues to the public sector and

private sector projects, and reduces the pressure on

BENEFITS OF
institutional financing.

A DEBT Enhanced mobilization of resources by unlocking illiquid

retail investments like gold

MARKET
Development of heterogeneity among market participants

Assistance in the development of a reliable yield curve and

the term structure of interest rates.
TYPES OF MARKETS
Corporate Debt Market

Public Sector Undertaking Bond Market

Government Securities Market

 PRIVATE CORPORATE DEBT MARKET

THE CORPORATE DEBT MARKET THE PRIVATE CORPORATE THE SEBI IS RESPONSIBLE FOR THE MARKET IS FURTHER FIRST ISSUE CAN BE DONE IN
IS A MARKET WHEREIN DEBT SECTOR NEEDS LARGE THE PRIMARY MARKET (PUBLIC DIVIDED INTO PRIMARY (FIRST VARIOUS WAYS LIKE RIGHTS
SECURITIES OF CORPORATES AMOUNTS OF LONG-TERM ISSUES AS WELL AS PRIVATE ISSUE OF SECURITIES) AND ISSUE, PRIVATE PLACEMENTS,
ARE ISSUED AND TRADED FUNDS FOR EXPANSION, PLACEMENTS BY LISTED SECONDARY (ONGOING SALE PREFERENCE ISSUE AND IPO.
THEREIN. A WELL-DEVELOPED MODERNIZATION, COMPANIES) AND SECONDARY AND TRADE).
CORPORATE BOND MARKET RESTRUCTURING OPERATIONS, MARKET (OTC AS WELL AS
ENABLES CORPORATES TO AND MERGERS/ACQUISITIONS. EXCHANGE) FOR THE
RAISE LONG-TERM CAPITAL CORPORATE DEBT MARKET.
FOR LONG-GESTATION
PROJECTS/ACQUISITIONS AT A
LOWER COST AND THEREBY
AID IN ECONOMIC GROWTH.

Public sector undertaking bonds are
medium-and long-term obligations
issued by public sector
undertakings.
PSUs are permitted to issue two
types of bonds: tax-free and taxable
bonds. Tax-free bonds are bonds for
which the amount of interest is
exempted from the investor’s
income.
PSU BOND MARKET
The majority of PSU bonds are
PSUs float bonds in the primary
privately placed with banks or large
market to raise funds. PSUs borrow
investors. In privately placed issues,
funds from the market for their
rating is not mandatory while public
regular working capital or capital
issues are mandatorily rated by one
expenditure requirement by issuing
or more of the four rating agencies
bonds.
in India.
Investors in PSU bonds include
The minimum maturity of tax-free
banks, insurance companies, non-
bonds should be seven years
banking finance companies,
whereas PSUs will have the freedom
provident funds, mutual funds,
to fix the maturities of taxable
financial institutions, and
bonds.
individuals.
 GOVERNMENT SECURITIES MARKET

The government raises short-term and long-term funds by issuing securities. These securities do not carry risk and
are as good as gold as the government guarantees the payment of interest and the repayment of principal. They are,
therefore, referred to as gilt-edged securities.

Development of the government securities market is a pre-requisite for the development of the corporate bond
market. It acts as a channel for integration of various segments of the domestic financial market and helps in
establishing inter-linkages between the domestic and external financial markets.

The major investors are nationalized banks as they have to maintain reserve requirements. Other investors include
insurance companies, state governments, provident funds, individuals, corporates, non-banking finance companies,
primary dealers, financial institutions, and, to a limited extent, foreign institutional investors and non-resident
Indians (NRIs).
 • The Clearing Corporation of India Limited (CCIL)
was registered on April 30, 2001, under the
Companies Act, 1956.

CLEARING • It acts as the central counter-party in the

settlement of all trades in government securities,
CORPORATION treasury bills, money market instruments, repos,
inter-bank foreign exchange deals, and

OF INDIA derivatives of any kind where the underlying

instrument is a security or money market
instrument.
LIMITED
• The CCIL is the clearing and settling agency in
respect of all trades by institutional players such
as banks, DFIs, primary dealers, mutual funds,
corporates, and NBFCs who account for more
than 98 percent of the total trades.

• It manages risk to avoid system failures and also

manages the NDS-OM and NDS-CALL platforms.
 • The major participants are:-
• Central and state governments: The central government
raises money through the issue of dated securities and
treasury bills to finance the budget deficit and other
short-term and long-term financial requirements. The
state government, municipalities, and local bodies also
issue securities to finance their budgetary deficits and
developmental projects

• Primary dealers: They are market makers appointed by

PARTICIPANTS IN the Reserve Bank and have emerged as active
intermediaries in the government securities market and
THE DEBT money market.

MARKET • Public Sector Undertakings ( PSUs ): They issue tax-free

and taxable bonds to meet their long-term and working
capital needs. They also invest in debt securities to park
their surplus funds.

• Corporates: They are both issuers and investors in the

debt market.

• Banks: They are the captive investors in the government

securities market.
 • Mutual funds: Mutual funds are the predominant investors, in the debt market.
They have specialized debt funds such as money market mutual funds, gilt funds,
and so on.

• Insurance companies: They have been permitted to invest in the debt market and
the limits of investment have been specified by the IRDA.

• Foreign Institutional Investors (FIIs): They have been permitted to invest in

government securities and corporate bonds. The limits of their investment have
been specified.

• Provident Funds (PFs) and pension funds: They are large investors in government
securities and PSU bonds. They are not active traders in their portfolios.

• Charitable institutions and trusts: They are large investors in government securities
and bonds specified in the bye-laws governing them. They are also not active
traders in their portfolios.
SECURITIES TRADED IN DEBT
MARKET
Market Segment Issuer Instruments
Government securities Central Government Zero Coupon Bonds, Coupon Bearing Bonds, Treasury Bills,
Floating Rate Bonds, STRIPS, Dated Securities (Including MSS)

State Government Coupon Bearing Bonds, Floating Rate Bonds.

Public Sector Bonds Government Agencies/Statutory Bodies Government Guaranteed Bonds, Debentures.

Public Sector Units PSU Bonds–Taxable and Tax-free, Debentures, Commercial

Paper, Deep Discount Bonds.

Private Sector Bonds Corporates Debentures, Bonds, Commercial Paper, Floating Rate Bonds,
Secured Premium Notes, Zero Coupon Bonds, Inter-corporate
Deposits.

Banks Certificates of Deposit, Debentures, Bonds.

Financial Institutions Certificates of Deposits, Bonds.
 • The Debt Markets in India and all around the world
are dominated by Government Securities, which
account for between 50 - 75% of the trading volumes
and the market capitalization in all markets.

COMPOSITI • Government Securities (G-Secs) account for 70 - 75%

of the outstanding value of issued securities and 90-
95% of the trading volumes in the Indian Debt
ON OF THE Markets.

INDIAN • State Government securities & Treasury Bills account

for around 3-4 % of the daily trading volumes.

DEBT • The market is also very concentrated currently (in

MARKET
terms of liquidity of the outstanding G-Secs.) in the
top 10 liquid securities, accounting for around 70% of
the daily volume.
THANK YOU