3.

Literature Review

The Indian capital market, for equity and corporate debt, also dates back to colonial
period with the establishment of the first stock market in India in Bombay in 1857. During
the colonial period, many Indian firms adopted debentures as a source of financing (Roy,
2000). In 1991, the pricing of new issues was freed from restrictions, along with relaxation
of the restrictions on firms to approach the capital market for the funds. In 1992, the
government allowed Indian firms with good track record to issue debentures in foreign
capital markets. In the post 1991 period, there was some growth in the bond market with
the introduction of many new and innovative types of bonds (Sen and Vaidya, 1997). In
the presence of information asymmetry, banks and financial institutions are expected to
be more effective in monitoring than the arms-length lenders. As private debt holders are
likely to be more informed through monitoring and screening, and private debt is usually
senior to public debt in terms of repayment order (Welch, 1997), it would be safer than
the arms-length debt. The literature, as applied to financial markets, has emphasized the
advantage of monitored debt such as bank borrowing in reducing informational and
monitoring costs as compared to effortlessly accessible debt (Rajan, 1992). In fact, this
presence of bureaucratic lethargy in state-owned financial institutions has been noted in
previous studies, which have found that countries with higher government ownership of
banks are associated with lower financial development and lower growth of per capital
income and productivity and that the lending behaviour of state-owned banks is politically
determined (La porta, Lopez-de-Silanes and Shleifer, 2002; Sapienza, 2004)

4. Objectives of the Study

The main objective of the study is to analyze the changing pattern of Indian
debt market. The objectives of the study is to study performance of Govt. and
Non-govt. securities during the period (2002-2012)

5. Methodology

Period of study-The study covers period of 10 years from 2002 to 2012. This
study is totally based on secondary data. Secondary data were collected from
various reports of ISMR, from 2002 to 2012, and websites.

6. Analysis and Interpretation

The turnover in non-repo dated securities (central and state government securities-Gsec.) traded in SGL had shown decreasing trend till2002 03 to2006- 07 and after that
upto 2012-13 it has been flutuative but in WDM these were traded averagely 60% of total
traded in SGL.The total turnover generated through T-bill has only share of averagely
30% in comparison to the G-sec. Within ten years. The share PSU/Institutional Bonds is
averagely 10-15% only and Non-government securities (corporate bonds and others)
accounted for a meager 5%-7%only.on comparing overall

752

Ms. Lovely Srivastava et al

traded debt securities in WDM the corporate securities has less contribution in
the growth of Indian Debt Market as well as in financial market too. There is
needed to be taking some policy measures to increase their share.

The trend turnover in non-repo dated securities (central and state government
securities-G-sec.) traded in SGL is showing decreasing trend till2002 13 while
negative in 2014-15 and it shows same decreasing trend in WDM too. The trend in
total turnover generated through T-bill is accounted inclination in WDM segment
throughout the decade and same in SGL trade but exception negative decline in the
year 2006-07 as compared to the G-sec.The share trend of PSU/Institutional Bonds
is inclined from the year 2003-15 but was negative in 2002-03 and Non- government
securities(corporate bonds and others) accounted for again in increasing trend from
33140.13 mn.(2002-03) to 646649.41 mn.(2014-15) in overall traded debt securities
in WDM. The corporate securities have less contribution in the growth of Indian Debt
Market as well as in financial market too. There is needed to be taking some policy
measures to increase their share.

12000000

8000000

10000000

6000000

2000000

4000000

0
-03
-04
-05
-06
-07

-08

2006

-09

2007

-10

2008

-11

2009

-12

2010

-13

2011

-14

2012

-15

2013
2014

-2000000
2002
2003
2004
2005

Trend value of Turnover

of Non-Repo Central &
State Govt Securities On
WDM (million)

Trend value of Turnover

of Non-Repo Central &
State Govt Securities On
SGL (million)

Chart 1: Trend value of Turnover of Non-Repo Central & State Govt Securities

Evaluation of Contribution of Debt Market in Indian Financial Market 755

3500000

2500000

3000000

2000000

1500000

500000

1000000

-03
-04

2002

-05

2003

-06

2004

-07

2005

-08

2006

-09

2007

-10

2008

-11

2009

-12

2010

-13

2011

-14

2012

-15

2013
2014

-500000
-1000000

-1500000

Turnover of Non-Repo T-Bills

On SGL (million)

Turnover of Non-Repo T-Bills

On WDM (million)

Chart 2: Turnover of Non-Repo T-Bills.

1600000

1200000

1400000

1000000

800000

400000

600000

200000

0
-03
-04

2002

-05

2003

-06

2004

-07

2005

-08

2006

-09

2007

-10

2008

-11

2009

-12

2010

-13

2011

-14

2012

-15

2013
2014

-200000

Turnover of PSU/ Inst. Bonds

On WDM (million)

Turnover of Others

(Corporate Bonds etc.) On

WDM (million)

Chart 3: Turnover of PSU/ Inst. Bonds (Corporate Bonds etc.)

756

Ms. Lovely Srivastava et al

7. Conclusions

Indian Debt market is in under developed form. The measure taken by the SEBI and RBI is
quite good on the way of development of the market. Indian lenders with monitoring ability
may behave in ways that do not mirror practices in the West. A higher level of monitored
lending will be associated with higher outsourcing levels. Arms-length lenders in India, such
as bondholders, may be prey to the collective action problems that beset numerous smallholders of debt certificates. They will have to rely on publicly available information. Or, they
may have to expend significant resources to obtain privately held information about the firm.
In India, easily accessible lenders will not have the ability to deal meaningfully with the firms
they lend to. Hence, their debt will be associated with higher information costs and less
monitoring possibilities. This implies that firms with greater reliance on approachable debt
will also experience laxer external monitoring and thus engage in outsourcing activities. In
addition to these changes there are more requirements to improve the market policies and
other aspect of trading facility for the growth of debt market.

8. Recommendations

We are recommending following points for the future prospect based on the analysis
of changing pattern of past ten years.

The main reason behind such declining trend as mentioned in the graphs and tables
is the lesser interest of investors for investing their surplus in government securities
due to lesser rate of interest on such G-Sec. There is urgent need to increase limit of
investment u/s 80C of Income Tax Act 1961 to attract more investment for such GSecs.

Floating interest rate should be introduced in Indian Debt Market systematically.

RBI should take initiative for liberalizing the norms of investment for Financial
Institutional Investments (FIIs).

References

Economic Survey 2002-13, various reports of ISMR (2002-13) and

www.nseindia.com

Barua, Raghunathan, Jayant An Vetrma (1994) Analysis of Indian Securities Industry:

Market for Debt Journal of Management,Vol19, No1

Black, Fischer, 1972. Capital market equilibrium with restricted borrowing, Journal
of Business, 45, pp.444-455.
Barua Samir, K.Raghunathan, V.Varma, Jayanth R., Research on the Indian Capital
Market:A Review, Vikalpa, Vol. 19, No. 1,January-March 1994

Samir K.,Raghunathan V.,Varma Jayanth R., Venkiteswaran N, Analysis of the

Indian Securities Industry: Market for Debt Vikalpa, Vol. 19, No. 1,January 1994

CONCLUSION

A vibrant corporate bond market provides a suitable alternative to conventional bank finances and
also mitigates the vulnerability of foreign currency sources of funds. In India, the regulators have
taken proactive steps and provided the market with tools of risk management. Efforts are on to enable
wider participation the market and create scope for market making. However, Development of debt
market is not a one-off affair. We have been able to foster the development of a deep and liquid G-Sec
market in India; and there are issues that need continued coordination and cooperation between the
market participants and

the regulators to develop private bond market for making Indias bond market tru debt market.

This paper assessed the bond market in India by briefly describing its structure and
functioning, as well as employing to identify factors that influence the demand and

supply
of
bonds
actually
influence.Thisstudy
intended to explain the intensity of debt issues for Indian firms given the conditions of the
economy and also identified the capacity of the firms to raise cheaper funds or to lengthen the
maturity of their bond issues for given financials. We tested the hypotheses of whether
funding
costs, maturity structure, intensity of activity vary across issuer groups, whether
effective
exchanges rates impact domestic issues, whether existing debt impact the future debt issues,
etc.
Bonds offered by the issuers in the primary market must have favorable features in order to
attract investors and improve the overall participation to remain liquid in the secondary
market.
WE estimated regression models to investigate the relationship between the market
characteristics that also included the external sector to signify the major determinants of
activity,
maturity and coupon rates, etc. Our findings have been in consonance with previous finding
in
the literature. The credit rating is the most significant factor to the investors when they select
bond investment. It helps the investors assess the credit risk of the bond and thus require an
appropriate risk premium. The bond market is affected by the movement in other security
markets. To compete for the limited funds of the institutional investors, bond markets must be
able to provide investors certain facilities to promote higher investments in bonds. RBI Credit
Policy 2009 confirmed that the government borrowing programs could crowd out the
opportunity
of investment in debt markets in 2009. Questions such
as do

macroeconomic variables
impact
firms
use
of
bond
financing
financing over
bond financing could also be answered. Similarly, we also provided insights on
the interaction between the domestic bond market and the external bond market via stronger
currency. The development of a bond market can take
an economy one step closer to
enjoying the vast benefits that accrue to countries with
developed bond
markets. Investors
with diverse expectations are a pre condition for the debt market.