Corporate Bond Market Tripled in 10 Years; Tokenisation Will Take It to Retail Investors: BSE CEO at E-Sutra Summit
Source: E-Sutra / Zee Business
India is moving rapidly towards its goal of becoming a developed nation, recording a GDP growth rate of 7.8% despite challenging global conditions. However, accelerating this growth will require greater capital formation.
Speaking at the E-Sutra Zee Business Bond Tokenisation Summit, Bombay Stock Exchange (BSE) Managing Director and Chief Executive Officer Sundararaman Ramamurthy said that while Indian investors today have a strong understanding of the equity market, the corporate bond or debt market still holds enormous untapped potential.
He said that over the past decade, India's corporate bond market has grown at a compound annual growth rate (CAGR) of 12%, tripling from ₹18 lakh crore to ₹54 lakh crore.
However, this growth is still not enough. India's corporate bond market currently accounts for only around 10-11% of the country's GDP, compared with nearly 40% of GDP in developed economies such as the United States.
The BSE CEO said that taking the corporate bond market to the next level will require addressing several policy and structural challenges.
At present, around 98% of the market is issued through private placements. Companies tend to avoid public issues aimed at retail investors because of the higher cost involved. The cost of issuance for public issues needs to be brought down.
Around 95-96% of bond issuances in India are from companies rated AAA or AA. In the US, AAA-rated bonds account for only around 5% of the market, while the majority — nearly 60% — falls in the AA and BBB categories. This makes it considerably more difficult for emerging and developing companies to raise capital from the market.
Changes in tax regulations related to debt mutual funds over the past three to four years have also affected the pace of growth in the market.
Referring to Prime Minister Narendra Modi's message at the Global Fintech Fest (GFF), Sundararaman Ramamurthy said that India has emerged as a global leader in digital payments. In August alone, more than 2,400 crore digital transactions were recorded in the country, accounting for more than 50% of the world's total digital payments.
He said the time has now come to extend this digital revolution beyond payments to credit, savings and investments. According to him, tokenisation could play a key role in making this vision a reality.
Highlighting the potential benefits of tokenisation, the BSE CEO said that with the use of the RBI's digital e-rupee (CBDC) and tokenisation technology, settlements could eventually move beyond the existing T+1 framework. Money and securities could be transferred instantly to digital wallets.
Tokenisation could enable bonds to be divided into very small fractional units. This would allow ordinary citizens in Tier-2, Tier-3 and Tier-4 cities, as well as rural areas, to invest their small savings in corporate bonds and potentially earn better yields, such as 9%.
Tokenisation can help distribute risk across the financial system, reduce the role of intermediaries and lower the cost of capital, while also opening up new avenues for insurance and pension products.
Sundararaman Ramamurthy praised REC Ltd., the government-owned entity that issued the country's first tokenised bond, as well as market regulator SEBI for developing progressive policies over time.
He concluded by assuring that BSE remains fully committed to ensuring that the benefits of the bond market and tokenisation reach every corner of the country. BSE, he said, will work closely with SEBI and the government while adhering to all regulatory guidelines.