Corporate bond market: Liquidity in secondary trade rises

2016-17 saw 26% growth in number of trades and 44% growth in volumes

The corporate bond market is slowly coming of age, with liquidity in the secondary market on the rise, according to the Financial Stability Report (FSR) published by the Reserve Bank of India (RBI). “Various initiatives by the Securities and  Exchange Board of India and RBI to develop the market for corporate bonds over the past few years seem to be bearing fruit now,” went the report, issued on Friday.

Primary issuance in the corporate bond space rose from Rs 1.74 lakh crore in 2008-09 to Rs 6.7 lakh crore in 2016-17. “Secondary market activities…are also on the rise, with 2016-17 witnessing growth of 26 per cent in a number of trades and 44 per cent in terms of volume (from) the previous year,” it said.

This is good news for the market and issuers looking to tap it. A bank-dominated market is giving way to a market-based financial system.

“The pick-up in the capital market has, to some extent, offset the fall in credit growth,” the FSR said, noting fundraising from the capital market has risen for the past four financial years.

However, the corporate bond market is overwhelmingly dominated by private placement, with 95 per cent of issuance on a bilateral basis. In 2016-17, out of a total issuance of Rs 7.24 lakh crore, about Rs 6.95 lakh crore was through private placement. “The dominance of private placement is because of operational flexibility, cost, and ease of issuance, compared with a public issue,” said a senior bond dealer. “The regulator’s approach should be on initiating measures to provide a boost to the public issue route, to channelise retail (from individuals) savings into corporate bonds, without impacting the size and growth of private placement.”

Source: FSR, PRIME database