Deepening the Corporate Bond Market in India | 19 Dec 2025

Source: PIB 

Why in News?

NITI Aayog has released Deepening the Corporate Bond Market in India report emphasizing that a more efficient corporate bond market is crucial for expanding market access, improving liquidity, and enhancing investor participation. 

What is the Current State of India's Corporate Bond Market?

• Significant Growth, Yet Untapped Potential: The market has expanded from Rs 17.5 trillion in FY2015 to Rs 53.6 trillion in FY2025, growing at ~12% CAGR (Compound annual growth rate).  
  • However, at 15-16% of GDP, it remains shallow compared to peers like South Korea (79%) and Malaysia (54%). 
• Concentrated and Institutional: Fundraising through bonds is now comparable to bank credit, but the market is dominated by private placements (98% of issuances) and top-rated (AAA/AA) borrowers.  
  • Participation from MSMEs, retail investors (<2%), and foreign portfolio investors is minimal. 
• Liquidity Challenges: The secondary market is illiquid with a low annual turnover ratio (0.3), driven by a buy-and-hold approach by institutional investors like insurance and pension funds. 
• Future Potential: With continued reforms and innovation, India’s corporate bond market could exceed Rs 100–120 trillion by 2030, becoming a pillar of financial stability and growth. 

Why is a Deep Corporate Bond Market Essential for India? 

• Viksit Bharat 2047 Requirement: India's ambition to become a USD 30 trillion economy with USD 18,000 per capita income requires a robust financial system capable of mobilizing long-term, low-cost capital at scale. 
• Financial Architecture Balance: Plays a pivotal role in achieving a balanced, resilient financial architecture by expanding funding avenues, and lowering borrowing costs by creating a competitive, liquid marketplace where diverse issuers can access long-term capital directly from a wide pool of investors. 
• Capital Formation Engine: Channels institutional and household savings into productive sectors, and facilitates development of risk management instruments like credit derivatives and securitization. 
• Reducing Banking Sector Risk: Diversified funding sources reduce reliance on banks, enabling them to focus on priority sectors and MSMEs while mitigating non-performing asset (NPA) buildup and credit concentration risk. 
• Strengthens Monetary Policy Transmission: A deep corporate bond market strengthens monetary policy transmission by allowing interest rate changes to pass through faster and more transparently via a well-defined yield curve.  
  • It also provides a reliable benchmark yield curve for pricing credit risk across the economy. 

What are the Key Challenges in Developing a Deep Corporate Bond Market? 

• Regulatory Overlap & Complexity: Multiple regulators (SEBI, RBI, Ministry of Corporate Affairs) lead to fragmented compliance, increased costs, and delays, especially for new instruments. 
• Stringent Investment Mandates: Institutional investors (insurance, pension funds) are often restricted by regulation to invest primarily in high-rated (AA and above) papers, starving lower-rated corporates of funds. 
  • Limited enforcement capacity of debenture trustees and gaps in bondholder protection undermine investor confidence, especially in lower-rated debt. 
• Weak Insolvency Recovery & Infrastructure: Despite the Insolvency and Bankruptcy Code (IBC), resolution processes face delays (average 713 days vs. 330-day mandate) and declining recovery rates, affecting investor confidence. 
• High Costs & Tax Disincentives: High issuance/listing costs, complex Tax Deduction at Source (TDS) rules on interest, and less favourable capital gains tax treatment compared to equities make bonds less attractive. 
• Underdeveloped Ecosystem: Shallow markets for risk-mitigation tools (like Credit Default Swaps), securities lending, and a fragmented data infrastructure hinder growth. It also reduces price transparency, constraining efficient risk assessment and trading activity.

What is the Proposed Roadmap for Deepening the Corporate Bond Market as per NITI Aayog? 

NITI Aayog proposes a 3-phase, 6-year reform strategy that prioritises regulatory simplification and strengthening of market infrastructure in the initial stages, before advancing toward deeper institutional reforms and global integration, thereby minimising systemic risks: 

• Phase I (1-2 Years, Strengthen Foundations): Streamline regulations across SEBI, RBI, MCA. Enhance retail access via digital platforms and investor education. 
  • Improve insolvency timelines and strengthen debenture trustee roles. 
  • Pilot AI-driven credit scoring for Small and Medium Enterprises (SMEs) and encourage voluntary market-making. 
• Phase II (2-4 Years, Expand & Innovate): Introduce innovative products like covered bonds (Backed by high-quality collateral like public-sector loans), targeted subsidy bonds, and fractional bond funds. 
  • Develop dedicated platforms for SME bonds and lower-rated debt.  
  • Review investment mandates for insurers/pension funds to allow more diversification. 
• Phase III (4-6 Years, Integrate & Mature): Establish a unified bond market regulator or a high-powered statutory task force.  
  • Leverage advanced tech (Blockchain, AI) for a secure, digital bond ecosystem. 
  • Gradual integration with global settlement systems (e.g., Euroclear) to attract stable foreign capital and deepen market resilience. 

Conclusion 

India’s corporate bond market has expanded but remains shallow and fragmented, limiting its ability to mobilize long-term capital. Coordinated reforms in regulation, investor diversification, insolvency efficiency, and market infrastructure are essential to make it a Rs 100–120 trillion financing pillar for Viksit Bharat 2047.