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Informist, Tuesday, Jun. 16, 2026

 

NEW DELHI – Bank lending and the government securities market continue to overshadow India's corporate bond market, leaving corporate bonds with only a small share of GDP and the overall debt market, CareEdge Ratings said in a report. "Corporate bonds account for roughly 21% of the total debt market, underscoring the large presence of government securities and the continued reliance on bank financing." the rating agency said. Of the total debt market, nearly 75–80% consists of central and state government borrowings.

 

In recent years, India has rolled out a range of regulatory and policy reforms to strengthen investor protection, improve transparency, and raise governance standards in the bond market. Major steps include moving secondary trading onto an electronic request for quote platform, introducing partial credit enhancements and repos to improve liquidity, and mandating large borrowers to meet targets for market borrowing. Banks can now invest more freely after the removal of the held-to-maturity cap on corporate and state bonds. On the investor side, rules for foreign portfolio investments have been eased, alternative investment funds are now allowed to trade credit default swaps, and exchanges can offer futures contracts on corporate bond indices, the rating agency said. "The market has grown steadily over time, supported by regulatory measures, but issuances remain sensitive to policy changes and interest rate movements. 

 

In terms of issuers, the outstanding corporate bond market is also largely dominated by non-banking financial companies, which account for 30.2% of total outstanding issuances, followed by private corporates at 27.6%, public sector undertaking at 20.5%, and banks at 13.0%, with government entities accounting for a significant share. "A major limitation is the concentration of issuances in highly rated instruments and sectors such as BFSI (banking, financial services, and insurance) with limited participation from lower-rated issuers," the rating agency said. "Investments in the corporate bond market remain heavily skewed towards highly rated instruments i.e. AAA and AA categories, which together command more than 85% of the market."

 

By economic size, India's corporate bond market is about 16% of GDP — well below China at 36% and the US at 40%. "This disparity highlights the smaller role of market-based financing in India compared to more advanced economies," CareEdge said. Bank credit to GDP stands around 61%.

 

India's corporate bond market has experienced steady expansion over time, though annual issuances have been influenced by regulatory changes and interest rate cycles. Bond issuances increased in 2024-25 (Apr-Mar) following the Reserve Bank of India's FY24 decision to raise risk weights on bank lending to NBFCs, encouraging a shift toward market-based borrowing.

 

However, issuances moderated in FY26 after the rollback of these measures in April 2025, combined with a hardening interest rate environment. Despite such fluctuations, issuances have grown at a stable compound annual growth rate of around 7.4% over the past 12 years. In absolute terms, the market has risen significantly to nearly INR 59 trillion in FY26 from around INR 18 trillion in FY15, underscoring consistent long-term expansion.

 

"Outstanding volumes have expanded at a CAGR of approximately 11%, exceeding nominal GDP growth of about 10% over the same period. Overall, while issuance activity remains sensitive to policy shifts and yield movements, the sustained rise in outstanding volumes points to a gradual strengthening and deepening of India's corporate bond market," CareEdge said. 

 

Another hurdle for corporate bonds is a thin secondary market. Government securities dominate this market, with an average daily turnover of about 10 times that of corporate bonds. "In fact, when we compare corporate bond ADTO (average daily turnover) as a percentage of outstanding bond stock, India's ratio of 0.2% appears much lower than those of China, the US, and the UK, pointing to limited liquidity," CareEdge said.  End

 

Reported by Vaishali Tyagi

Edited by Deepshikha Bhardwaj

 

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