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Debt Market

This document discusses the debt market in India. It defines the debt market and notes that it is dominated by the United States. It then lists the main participants in the debt market such as institutional investors, governments, and individuals. The document outlines the need for a debt market in India to provide long-term funding and coverage for real sector needs. It also classifies common debt instruments like debentures, bonds, mortgages, and certificates of deposits. Finally, it discusses the main regulators of the Indian debt market and recent reforms to develop a more liquid secondary corporate bond market.

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62 views6 pages

Debt Market

This document discusses the debt market in India. It defines the debt market and notes that it is dominated by the United States. It then lists the main participants in the debt market such as institutional investors, governments, and individuals. The document outlines the need for a debt market in India to provide long-term funding and coverage for real sector needs. It also classifies common debt instruments like debentures, bonds, mortgages, and certificates of deposits. Finally, it discusses the main regulators of the Indian debt market and recent reforms to develop a more liquid secondary corporate bond market.

Uploaded by

Sonam
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Topic: Debt Market

Class: M.B.A. (FINANCE)


Subject: Financial Systems and Institutions
Submitted To: Submitted By:
Dr. Anu Kohli Yogita Pandey
Mohammad Mishkaat
Vertika Yadav
Devansh Singh
ACKNOWLEDGEMENT

We would like to express our special thanks of gratitude to our


teacher Dr. Anu Kohli ,who gave us the golden opportunity to
do this wonderful project on the topic of Debt Market, which
also helped us in doing a lot of Research and we came to know
about so many new things we are really thankful to her.
ASSIGNMENT-DEBT MARKET
Introduction-
The debt market (also bond market or credit market) is a financial market where
participants can issue new debt, known as the primary market, or buy and sell
debt securities, known as the secondary market. This is usually in the form of
bonds, but it may include notes, bills, and so on. Its primary goal is to provide
long-term funding for public and private expenditures. The bond market has
largely been dominated by the United States, which accounts for about 39% of
the market.

An important part of the bond market is the government bond market, because
of its size and liquidity. Government bonds are often used to compare other
bonds to measure credit risk.

Participant of Debt Market-


Debt market participants are similar to participants in most financial markets and
are essentially either buyers (debt issuer) of funds or sellers (institution) of funds
and often both.

Participants include:

 Institutional investors
 Governments
 Traders
 Individuals
Because of the specificity of individual bond issues, and the lack of liquidity in
many smaller issues, the majority of outstanding bonds are held by institutions
like pension funds, banks and mutual funds. 
Need Of Debt market-
 Ensuring financial system stability –
A liquid corporate bond market can play a critical role because it
supplements the banking system to meet the requirements of the
corporate sector for long-term capital investment and asset creation.
 Enabling meaningful coverage of real sector needs-
1. The financial sector in India is much too small to cater to the needs
of the real economy.
2. The debt markets need to grow manifold to ensure that the financial
sector becomes adequate for an economy as large and as ambitious
as India’s.
 Creating new classes of investors-
1. Financial institutions like insurance companies and provident funds
have long-term liabilities and do not have access to adequate high
quality long-term assets to match them.
2. Creation of a deep corporate bond market can enable them to
invest in long-term corporate debt, thus serving the twin goals of
diversifying corporate risk across the financial sector and enabling
these institutions to access high quality long-term assets.

Classification of Debt Market-


Bonds are either issued on the primary market, which rolls out new debt, or on
the secondary market, in which investors may purchase existing debt via brokers
or other third parties.

Debt Instrument-
A debt instrument is a tool an entity can utilize to raise capital. It is a
documented, binding obligation that provides funds to an entity in return for a
promise from the entity to repay a lender or investor in accordance with terms of
a contract. Debt instrument contracts include detailed provisions on the deal such
as collateral involved, the rate of interest, the schedule for interest payments, and
the timeframe to maturity if applicable.

Some of the common types of the debt instrument are:

1. Debentures-

Debentures are not backed by any security. They are issued by the company to
raise medium and long term funds. They form the part of the capital structure of
the company, reflect on the balance sheet but are not clubbed with the share
capital.

2. Bonds-

Bonds on the other hands are issued generally by the government, central bank
or large companies are backed by a security. Bonds also ensure payment of fixed
interest rates to the lenders of the money. On maturity of the bond, the principal
amount is paid back. Bonds essentially work the way loans do.

3. Mortgage-

A mortgage is a loan against a residential property. It is secured by an associated


property. In a case of failure of payment, the property can be seized and sold to
recover the loaned amount.

4. Treasury Bills-

Treasury bills are short-term debt instruments that mature within a year. They
can be redeemed only at maturity. They are sold at a discount if sold before
maturity.

5. Government Securities-

A government security is a bond or other type of debt obligation that is issued by


a government with a promise of repayment upon the security's maturity date.
Government securities are usually considered low-risk investments because they
are backed by the taxing power of a government.

6. Corporate Bonds-
A corporate bond is a debt security issued by a corporation and sold to investors.
The backing for the bond is usually the payment ability of the company, which is
typically money to be earned from future operations.

7. Certificate of Deposits-

A certificate of deposit (CD) is a product offered by banks and credit unions that
offers an interest rate premium in exchange for the customer agreeing to leave a
lump-sum deposit untouched for a predetermined period of time.

Regulators Of Debt Market In India-


The following are the main regulatory bodies for the debt capital markets:

 Ministry of Corporate Affairs.


 Reserve Bank of India (RBI).
 The Securities and Exchange Board of India (SEBI).
 The stock exchange where the non-convertible debentures (NCDs) are
listed (that is, either the National Stock Exchange of India Limited (NSE), or
the Bombay Stock Exchange Limited (BSE)).

Reforms In Debt Market-


 There are steps underway to have a liquid secondary market for corporate
bonds, an institutional shield against future non-performing assets arising
from banks funding long term infrastructure projects they are ill-suited to,
given the short maturity of their deposits.
 The National Stock Exchange (NSE) has launched a platform to facilitate
repo, or repurchase obligations, between counterparties holding or seeking
to hold such bonds. A liquid secondary market implying ready option for
exit would shore up value and lead to more efficient price discovery for
such instruments.
 A thriving market for corporate bonds is crucial for modern transparent
arm’s-length finance to eschew excessive reliance on opaque bank funding,
especially for long-gestation investment projects.

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