Corporate bonds form just 10–15% of India Inc's debt—well below global peers, says Sneha Pandey

Time of India

09-07-2025

India's corporate
bond market
has grown in size, touching ₹53 trillion as of March 2025, but it still plays a surprisingly limited role in the overall corporate funding landscape.
According to
Sneha Pandey
, Fund Manager – Fixed Income at Quantum AMC, corporate bonds account for just 10–15% of total corporate debt in India—far behind the 30–50% share seen in developed economies like the U.S. and Eurozone.
Despite raising nearly ₹10 trillion through new issuances in FY25, structural challenges such as heavy
reliance
on
bank loans
, low liquidity,
credit risk concerns
, and limited retail participation continue to hinder deeper development. Edited Excerpts -
Q) How big is our corporate bond market? Do you believe India's corporate bond market is still underdeveloped? What are the key structural challenges?
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A) As of March 2025, the Indian corporate bond market stands at approximately Rs 53 trillion, with nearly Rs 10 trillion raised through new issuances in FY 2024–25 alone - a significant figure in isolation.
However, for a $4.3 trillion economy, this number remains relatively modest. In contrast, developed markets like the U.S. have corporate bond markets valued at over $10 trillion, while the Eurozone exceeds €3 trillion.
This highlights the underdeveloped nature of India's corporate bond market. While there has been notable progress since the 1990s, the market still lags behind in both size and depth.
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A key reason is that Indian companies continue to depend largely on bank loans for their funding needs, with only a small share of debt raised through bond issuances…
Currently, corporate bonds account for just 10–15% of total corporate debt in India, compared to 30–50% in developed economies.
Banks continue to hold a dominant share of corporate lending, leaving the bond market with a relatively limited role. This reflects a structural issue that will take time…and targeted reforms…to fully address.
Q) Why has retail participation in India's corporate bond market remained low compared to equities or mutual funds?
A) India's corporate bond market holds promise - but for now, it feels like an exclusive club that's tough to get into…
Relatively - Liquidity remains a major issue. Bonds trade less frequently as compared to stocks, and wide bid-ask spreads for smaller lots (ticket size) make it hard for investors - both institutional and retail - to enter or exit smoothly. On top of that, credit risk continues to weigh heavily – cause not everyone understands the details of these Ratings and Rationales…
A large portion of bonds are rated below AAA, and default incidents in the past (IL&FS and DHFL), while not rampant, are enough to keep many investors cautious.
Taxation doesn't help either… Add limited product options, like underdeveloped bond ETFs or mutual funds, and it's clear that the market is still evolving…
Retail investors, in particular, face multiple hurdles - from lack of awareness, complex processes and limited access to easy-to-use platforms. Meanwhile, institutional investors mostly buy and hold, which further dries up liquidity…
The tenure of the bond too is a limitation… and it fails to align with the investment horizon. And with a few large issuers dominating the market, concentration risk is another concern.
To truly deepen and democratize the bond market, India needs broader investor participation, more diverse products, improved transparency, and a more retail-friendly ecosystem. Until then, the market will remain underutilized - despite its strong potential.
To that extent I believe 'The RBI Retail Direct' platform is a commendable step towards democratizing access to government securities, but it remains in a nascent phase and requires significant progress to achieve widespread adoption and impact. A corporate bond ETF could also aid the retail investors may be…
Q) How does the reduction of high-cost debt influence bond yields, especially across short and long durations?
A) When companies pay off expensive loans, it's like shedding extra baggage - they become more financially fit... This not only lowers their overall borrowing cost but also boosts investor confidence.
The result? They can raise money at cheaper rates next time. But here's the twist - Short-term bonds react fast to these changes - like a speedboat turning quickly.
Long-term bonds? They're more like a cruise ship - slower to turn, because they're looking at the big picture: inflation, growth, and where interest rates might be years down the line. So cutting high-cost debt helps - but how much it helps depends on how long the bond lasts.
Q) Are we likely to see increased demand for long-duration bonds as a result of improved government borrowing discipline?
A) When we talk about improved government borrowing discipline, we're referring to a more sustainable and responsible approach to managing fiscal deficits and public debt.
This includes reducing budget deficits, shifting toward longer-term borrowing to lower refinancing risks, and maintaining better control over inflation and interest rates...
While fiscal discipline lays a strong foundation for long-duration bond demand, it isn't the only factor at play. A stable macroeconomic environment is equally essential.
When interest rates are low and monetary policy remains steady, long-duration bonds become more appealing, allowing investors to lock-in current yields for the long term.
Effective fiscal management can support this stability, but if inflation begins to rise or central banks are forced to tighten policy, the attractiveness of long-duration bonds diminishes.
Inflation, in particular, is a key concern. Long-term bonds are highly sensitive to it, and unless investors are confident that inflation will remain under control, they'll demand higher yields to compensate for the risk. Institutional investors like pension funds and insurance companies often drive demand for long-term bonds due to their need for stable, long-horizon returns.
If government finances are well-managed and credible, these investors are more likely to allocate funds to long-duration securities. Moreover, in a globally competitive market, improved fiscal discipline could position a country's bonds as a safer, more attractive alternative to traditional safe-haven assets like U.S. Treasuries - especially for foreign investors. However, sustaining this demand requires consistency.
Any signs of fiscal slippage, political pressure-driven spending, or global interest rate shocks could quickly undermine investor confidence and dampen enthusiasm for long-duration bonds, even in otherwise disciplined economies.