NBFCs lead India's corporate bond market as private placements dominate: Jiraaf Bond Analyser

Economic Times

6 days ago

India's corporate bond market is experiencing significant growth, largely fueled by NBFCs due to their reliance on capital markets for funding. Banks, however, have become more cautious with bond issuances amid rising interest rates, favoring deposit mobilization. Private placements dominate debt issuance, offering efficiency, while regulators aim to boost public debt offerings for broader investor participation.
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India's corporate bond market continues to witness robust growth, driven largely by the financial sector, with Non-Banking Financial Companies (NBFCs) leading the charge.According to data from the Jiraaf Bond Analyser platform, the financial sector accounts for the largest share of borrowings through capital markets, underlining its reliance on access to capital for onward lending.For both banks and NBFCs, diversifying funding sources is increasingly seen as a strategic tool to mitigate business risks.NBFCs have emerged as the dominant issuers of Non-PSU bonds, especially since 2019, posting a compound annual growth rate (CAGR) of 25% in bond issuances during this period.Unlike banks, NBFCs typically lack access to low-cost retail deposits and, therefore, depend heavily on capital markets to meet their funding requirements.The post-Covid period further accelerated this trend, as NBFCs capitalised on the low-interest-rate environment to ramp up their borrowings through bond issuances.In contrast, banks have shown more conservative borrowing patterns in recent years. Post-2022, bond issuances by banks through capital markets saw a notable decline, as the Reserve Bank of India (RBI) hiked repo rates by 250 basis points between May 2022 and February 2023.This shift in the interest rate environment prompted banks to adopt a cautious approach, focusing more on deposit mobilisation rather than relying on capital market borrowings.Another key insight from Jiraaf's data is the overwhelming dominance of the private placement route in India's listed bond market.Over 95% of listed bond issuances are executed via private placements, where debt securities are offered directly to a select group of institutional or high-net-worth investors.This route offers issuers faster execution, reduced regulatory burden, and lower disclosure requirements compared to public offerings.In comparison, a public offer functions similarly to an IPO, inviting broader investor participation with higher compliance and disclosure norms mandated by SEBI. However, growth in public debt offerings remains muted, partly due to the procedural complexity and stringent regulatory framework.Recognising this, SEBI has initiated steps to ease compliance and disclosure norms for public debt offers, aiming to promote broader participation in the corporate bond market.India's corporate bond market is poised for further evolution as regulators push for greater transparency and wider investor participation.While NBFCs are expected to remain the primary issuers, banks may gradually return to the market if interest rates stabilise.Meanwhile, the continued preference for private placements reflects both issuer convenience and investor demand for bespoke debt instruments.With the government and regulators working to deepen and diversify India's debt market, platforms like Jiraaf are helping retail and institutional investors navigate opportunities in corporate bonds, facilitating wider adoption beyond traditional fixed deposits and mutual funds.(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)