Budget 2016: Good Times Ahead For Bond Markets?

While the Indian corporate bond market has become more active in the private placement segment in the past few years, the market's overall development has been ad hoc. This situation seems set for a much needed change, with the Reserve Bank of India (RBI) under its current governor, Raghuram Rajan, actively promoting the migration of long-term infrastructure debt and structured debt from the loan markets to the bond market.

The reason for this is two-fold: (1) the significant asset-liability mismatch makes bank funding of infrastructure projects unviable for most banks; (2) bond financing deepens debt markets by enabling capital markets participants (such as pension funds and insurance companies) to lend directly to borrowers. Such participants are generally considered to be better placed to evaluate and to assume longer term risk. Additionally, bonds have the perceived advantage of being more liquid than loans, in that trading of bonds is generally less complicated